Appendix — Pension Benefit Guaranty Corporation v. LTV Corp.
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JOSEPH F. SPANIOL, JR
In THE
Supreme Court of the United
OCTOBER TERM, 1989
PENSION BENEFIT GUARANTY CORPORATION,
8 Petitioner,
THe LTV CorporaTion, LTV Stee. Company, IN.,
OFFICIAL COMMITTEE OF UNSECURED CREDITORS OF
LTV CORPORATION, SUBCOMMITTEE OF PARENT CREDI-
TORS OF THE OFFICIAL COMMITTEE OF UNSECURED
CrepiTtors oF LTV Corporation, LTV BANK Group,
OFFICIAL COMMITTEE OF Equity Security HOLpERs,
BANCTEXAS DALLAS, N.A., Firte Tuirp BANK, HUNT-
INGTON NATIONAL BANK, CITIBANK, N. A., Davip H.
MILLER, and WILLIAM W. SHAFFER,
Respondents.
APPENDIX TO
PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
Of Counsei: Caro. CONNOR FLOWE
Tuouas S. MARTIN Generel Counsel
JENNER & Block Counsel of Record
21 Dupont Circle, N.W. JEANNE K. Beck
Washington, D.C. 20096 Deputy General Counsel
RIcHarRD K WILLARD James J. ARMBRUSTER
CHARLES G. COLE Pauta J. CONNELLY
Stertoe & JOHNSON Attorneys
— 1 N.W. den Bawarrt GUARANTY
a CORPORATION
2020 K Street, N.W.
Washington, D.C. 20006
(202) 778-8820
Ween - Gras Pemrime Co... Inc. - 788-0086 . Wasniwerow. O C. 80001
Ai
V
TABLE OF CONTENTS
PBGC v. The LTV Corp., Nos. 88-6244, 88-6246, 88-
review sought) —— ——
In re Chateaugay Corp. (PBGC v. The LTV Corp.),
Nos. 87 Civ. 6863 (RWS), 87 Civ. 7261 (RWS)
(S.D.N.Y. June 22, 1988) (opinion of the district
PBGC wv. The LTV Corp., No. 87 Civ. 7261 (RWS)
(S. D. N. V. Sept. 13, 1988) (judgment of the district
GOED eeeeeeenee
Statutory provisions: 29 U.S.C. §§ 1302(a), bane 1341,
1342, 1347 ——
PBGC Opinion Letter 81-11 (May 11, 1981) . — —
PBGC Opinion Leter (unnumbered) (April 24, 1981)
PBGC Opinion Letter 86-27 (Dec. 17, 1986)
Minutes of PBGC Board of Directors’ Meeting (Sept.
Tk GEEEEE ccsntensstethemeentemmnsnincietiiniiinitasiideiiememenainaiis
—— ee ee basa
22, 1987) . —s
Memorandum from Douglas A. Fraser, president of
United Auto Workers Union, to UAW staff (Dec. 8,
—ſ—
—ͤ—ũ4¹ä. 4 2 W —
la
APPENDIX
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
Nos. 695,696 August Term, 1988
(Argued January 13, 1989 Decided May 12, 1989)
Docket Nos. 88-6244, 88-6246, 88-6252
PENSION BENEFIT GUARANTY CORPORATION,
Plaintiff-Appellant,
Cross-A ppellee,
Davm H. MILLER and WILLIAM W. SHAFFER,
Intervenors-A ppeliants,
V.
THE LTV CORPORATION and LTV STEEL COMPANY, INC.,
Defendants-A ppellees,
OFFICIAL COMMITTEE OF UNSECURED CREDITORS oF LTV
CORPORATION, SUBCOMMITTEE OF PARENT CREDITORS OF
THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS OF
LTV CorRPORATION, LTV BANK GROUr, OFFICIAL Com-
MITTEE OF Equity Securiry HoLpers, BANCTEXAS
DALLAS, N.A., FirtTH THIRD BANK, HUNTINGTON Na-
TIONAL BANK and CITIBANK, N. A.,
Intervenors-A ppellees,
THE LTV BANK Group,
Intervenor-Appellee,
Cross-A ppellant.'
1 The LTV Bank Group filed a Notice of Cross-Appeal from the
final judgment of the United States District Court for the South-
2a
Before: VAN GRAAFEILAND, MESKILL and
MINER, Circuit Judges.
Appeal from a final judgment of the United States Dis-
trict Court for the Southern District of New York,
Sweet, J., that denied plaintiff Pension Benefit Guaranty
Corporation’s (PBGC) motion for summary judgment,
vacated PBGC’s Notice of Restoration of certain pension
plans, and entered judgment in favor of defendants The
LTV Corporation and LTV Steel Company, Inc.
Affirmed.
GARY M. FORD, General Counsel, Pension Benefit
Guaranty Corp., Washington, D.C. (Carol Connor Flowe,
Deputy General Counsel, Jeanne K. Beck, Assistant Gen-
eral Counsel, James J. Armbruster, Paula J. Connelly,
Pension Benefit Guaranty Corp., Washington, D.C., Philip
W. Tone, Jenner & Block, Washington, D.C., E. Calvin
Golumbic, Arent, Fox, Kintner, Plotkin & Kahn, Wash-
ington, D.C., of counsel), for Appellant Pension Benefit
Guaranty Corp.
R.A. KING, Pittsburgh, PA (Kenneth R. Bruce, Janet
R. Thompson, Buchanan Ingersoll, Pittsburgh, PA, Stuart
Cotton, Mound Cotton & Wollan, New York City, of coun-
sel), for Appellants David H. Miller and William W.
Shaffer.
LEWIS B. KADEN, New York City (Karen E.
Wagner, Sharon Katz, Joan Greco, Davis Polk & Ward-
well, of counsel), for Appellees LTV Corp. and LTV
Steel Co., Inc.
ern District of New York. It did not file a separate brief in sup-
port of this cross-appeal, but rather joined in a brief filed on behalf
of the LTV Corporation, LTV Steel Company, Inc. and the Official
Committee of Unsecured Creditors of the LTV Corporation. Its
position appears to be indistinguishable from the other parties’
claims. There being no separate brief filed, we consider its cross-
appeal to have been abandoned,
3a
MICHAEL J. CRAMES, New York City (Herbert S.
Edelman, Mare Abrams, Levin & Weintraub & Crames,
New York City, of counsel), for Appellees LTV Corp.
and LTV Steel Co., Inc.
Frank Cummings, Leboeuf, Lamb, Leiby & Macrae,
Washington, D.C., on the brief, for Appellees LTV Corp.
and LTV Steel Co., Inc.
BRIAN COGAN, New York City (Lawrence M.
Handelsman, Stroock & Stroock & Lavan, New York City,
Leonard E.M. Rosen, Theodore Gewertz, Harold Novikoff,
Wachtell, Lipton, Rosen & Katz, New York City, of coun-
sel), for Appellee Official Committee of Unsecured Credi-
tors.
GEOFFREY M. KALMUS, New York City (Joel
Zweibel, Peter V. Pantaleo, Kramer, Levin, Nessen,
Kamin & Frankel, New York City, of counsel), for Ap-
pellee LTV Bank Group.
CLAUDE D. MONTGOMERY, New York City (Edgar
H. Booth, Peter D. Wolfson, Sara L. Chenetz, Myerson &
Kuhn, New York City, of counsel), for Appellee Official
Committee of Equity Security Holders.
KATHRYN C. MALLORY, Dallas, TX (Robin E.
Phelan, Haynes and Boone, Dallas, TX, of counsel), for
Appellee BancTexas Dallas, N.A.
Carl B. Frankel, Paul V. Whitehead, Karin S. Feld-
man, United Steelworkers of America, Pittsburgh, PA,
Bruce H. Simon, Richard M. Seltzer, Babette A. Ceccotti,
Sophia E. Davis, Cohen, Weiss and Simon, New York
City, on the brief, for Amicus Curiae United Steelworkers
of America.
G. Stewart Webb, Jr., William D. Quarles, Warren W.
Hamel, Venable, Baetjer, Howard and Civiletti, Washing-
ton, D.C., on the brief, for Amici Curiae Armco, Bethle-
hem Steel Corp., Inland Steel Industries, Inc., National
Steel Corp. and USX Corp.
4a
MESKILL, Circuit Judge:
This is an appeal from a September 12, 1988 judgment
of the United States District Court for the Southern Dis-
trict of New York, Sweet, J., that denied a motion for
summary judgment by plaintiff Pension Benefit Guaranty
Corporation (PBGC), vacated PBGC’s Notice of Restora-
tion of several pension plans that were maintained and
administered by defendants The LTV Corporation and
LTV Steel Company, Inc. and ordered entry of judgment
in favor of LTV. The district court’s opinion is reported
as In re Chateaugay Corp., 87 B.R. 779 (S.D.N.Y. 1988).
We affirm the judgment of the district court and re-
mand the matter to PBGC.
BACKGROUND
A. PBGC and Title IV of ERISA
The Employee Retirement Income Security Act of 1974
(ERISA), 29 U.S.C. §§ 1001-1461 (1982 & Supp. IV
1986), as amended by the Single- Employer Pension Plan
Amendments Act of 1986 (SEPPAA), Pub. L. No. 99-
272, 100 Stat. 237, governs the maintenance and admin-
istration of employee pension plans. PBGC is a wholly
owned United States government corporation which serves
as a national insurer of pension plans. It was created
under ERISA section 4002, 29 U.S.C. § 1302, “(1) to
encourage the continuation and maintenance of voluntary
private pension plans. , (2) to provide for the timely
and uninterrupted payment of pension benefits to [plan]
participants and beneficiaries . . , and (3) to maintain
2 Certain sections of ERISA relevant to this appeal were further
amended by the Pension Protection Act of 1987, Subtitle D of
Title IX of the Omnibus Budget Reconciliation Act of 1987, Pub. L.
No. 100-203, §§ 9301-9346, 101 Stat. 1330, 1330-331 - 1330-374 (codi-
fied as amended at 29 U.S.C.A. §§ 1001-1461 (1985 & West Supp.
1988)). These amendments took effect after the events relevant
here, and therefore are inapplicable.
5a
premiums established by the corporation . . at the lowest
level consistent with carrying out its obligations.”
Under ERISA, single-employer pension plans may be
voluntarily terminated under certain circumstances by
plan administrators under ERISA section 4041, 29 U.S.C.
§ 1341. They also may be involuntarily terminated by
PBGC under ERISA section 4042, 29 U.S.C. § 1342, for
various reasons such as the employer’s inability to ade-
quately fund the benefit programs. PBGC is required to
guarantee payment of non-forfeitable benefits under ter-
minated plans, subject to certain limitations. See ERISA
sections 4022, 4022B, 4061, 29 U.S.C. §§ 1322, 1322b,
1361. To finance the payment of these benefits, PBGC
uses funding obtained from two sources: (1) the annual
insurance premiums paid by the administrators of covered
plans pursuant to sections 4006 and 4007 of ERISA, 29
U.S.C. §§ 1306, 1307, and (2) the employer liability pay-
ments collected under section 4062 of ERISA, 29 U.S.C.
§ 1362, which makes employers whose plans terminate
with insufficient assets liable to PBGC for part of the
terminated plan’s unfunded guaranteed benefits, see 29
U.S.C. § 1362(b).
Section 4047 of ERISA, 29 U.S.C. § 1347, provides for
the restoration of plans that have been terminated. Spe-
cifically, section 4047 provides, in pertinent part:
In the case of a plan which has been terminated
under section 1341 or 1342 of this title [PBGC] is
authorized in any such case in which PBGC] deter-
mines such action to be appropriate and consistent
with its duties under this subchapter, to take such
action as may be necessary to restore the plan to its
pretermination status, including, but not limited to,
the transfer to the employer or a plan administrator
of control of part or all of the remaining assets and
liabilities of the plan.
Whether PBGC properly exercised this restoration au-
thority is the focal point of the instant dispute.
6a
B. LTV and Its Financial Difficulty
pany, Youngstown Sheet & Tube Company and Republic
Steel Corporation. LTV Corporation and LTV Steel Com-
pany, Inc. will hereinafter be referred to collectively as
“LTV.” LTV maintained ee
the
for its employees, including the three plans that are
subject of the instant dispute, the Jones & Laughlin
Hourly Pension Plan (J&L Hourly Plan), the Jones &
Laughlin Retirement Plan (J&L Salaried Plan), and the
Pension Plan of Republic Steel Corporation Dated and
Effective as of March 1, 1950 (Republic Hourly Plan)
(collectively “the Plans”). The Plans were subject to the
minimum funding standards found in section 302 of
ERISA, 29 U.S.C. § 1082, and section 412 of the Internal
Revenue Code, 26 U.S.C. § 412 (1982) (amended 1986),
both of which required LTV to make contributions to
them.
When LTV began experiencing financial difficulty in
1985, it applied for and received from the Internal Reve-
nue Service (IRS) a waiver of its minimum funding re-
quirement for the 1984 plan year pursuant to section
412(d) of the Internal Revenue Code, 26 U.S.C. § 412/d).
According to the terms of the waiver, LTV was permitted
to amortize over a fifteen year period the 1984 contribu-
tion due under the plans. In 1986, LTV. still experiencing
financial difficulty, sought waivers of the amount it owed
for the 1985 plan year and the amount due under the
amortization agreement for the 1984 plan year. In No-
vember 1986, the IRS denied the request and revoked
LTV’s waiver of the 1984 payment obligation, making
LTV immediately liable for the contributions for the two
years.
On July 17, 1986, LTV and most of its subsidiaries
filed petitions for reorganization under Chapter 11 of the
7a
Bankruptcy Code, 11 U.S.C. §§ 1101-1174 (1982 & Supp.
V 1987). On December 16, 1986, LTV sent a letter to
PBGC stating that “because LTV is currently in reor-
ganization under Chapter 11 of the Bankruptcy Code,
LTV cannot and will not make contributions to the Plans
to eliminate the accumulated funding deficiencies arising
upon the denial of the funding waivers,” and that
ity, to fund the Plans for future years.”
C. PBGC’s Involuntary Termination of the Plans
On January 12, 1987, PBGC brought an action under
section 4042 of ERISA, 29 U.S.C. § 1342, to terminate
the Plans and to be appointed statutory trustee. LTV
agreed to the terminations and the United States District
Court for the Southern District of New York, Owen, J.,
entered consent orders terminating the Plans as of Janu-
ary 13, 1987. The United Steelworkers of America (the
Union) filed an unsuccessful motion to vacate the consent
orders. We affirmed the district court’s order denying
that motion. Jones & Laughlin Hourly Pension Plan v.
LTV Corp., 824 F.2d 197 (2d Cir. 1987). Pursuant to
the consent orders and the guarantee found in ERISA
section 4022, 29 U.S.C. § 1322, PBGC became liable for
funding the payment of the non-forfeitable benefits under
the Plans. Payment of benefits was reduced to the extent
they were not guaranteed by PBGC. Benefits not guaran-
teed by PGBC, such as certain early retirement, disability
and surviving spouse benefits were lost completely as a
result of the termination.
D. The Union Lawsuit and the 1967 Collective Bargain-
ing Agreement
The Union is the representative of LTV's non-
management employees. The Union brought suit in bank-
ruptey court alleging that LTV's failure to provide the
full range of benefits specified under the Plans amounted
8a
to a breach of the existing collective bargaining agree-
ment between the Union and LTV and was a violation of
section 1113 of the Bankruptcy Code, 11 U.S.C. § 1113
and hoping to settle the lawsuit, LTV sought and obtained
approval from the bankruptcy court to make a single
hardship payment to each retiree.
The Union and LTV subsequently entered into nego-
tiations that resulted in a new collective bargaining agree-
ment (the 1987 CBA). The 1987 CBA, which settled the
Union’s suit against LTV, is an interim agreement that
is to remain in effect until confirmation of a plan of re-
organization. Under the 1987 CBA, some of the benefits
that employees had enjoyed under the previous collective
On August 12, 1987, the SEPPAA Trusteeship Work-
ing Group (the Working Group), a PBGC committee es-
tablished to advise PBGC, unanimously recommended re-
storation of the Plans to avoid abuse of the pension termi-
nation insurance program. The recommendation was
based on:
— —ñ—j—äꝓ—ũ — — ee 7 ˙ðI— -
9a
a. LTV’s establishment of abusive follow-on plans
which, together with the PBGC’s guarantee, pro-
vide substantially the same benefits as the termi-
nated plans and restore amounts in excess of
PBGC’s guarantee limitations;
b. the improvement in LTV’s financial condition;
and
e. LTV’s demonstrated willingness to fund employee
retirement plans.
According to the minutes of the August 6, 1987 meeting
held to consider restoration, the Working Group “dis-
cussed the purposes of Title IV of ERISA, PBGC’s duties
and obligations under Title IV and SEPPAA’s Declara-
tion of Policy” before reaching it recommendation.
The Working Group’s recomm.-ndation was reviewed by
the Executive Director of PBGC who concurred in the
reasoning and the result. On September 22, 1987, PBGC
issued a Notice of Restoration stating that pursuant to
ERISA section 4047, 29 U.S.C. § 1347, it was appropriate
for PBGC to restore full liability for the Plans to LTV.
Restoration was effective as of January 13, 1987.
former salaried employees of LTV companies who were
entitled to benefits pursuant to the J&L Salaried Plan,
intervened individually and on behalf of
to have the Notice of Restoration enforced at least with
respect to the J&L Salaried Plan. The Official Committee
of Unsecured Creditors of LTV Corporation, the Subcom-
mittee of Parent Creditors of the Official Committee of
Unsecured Creditors of LTV Corporation, the LTV Bank
Group, the Official Committee of Equ’ty Security Holders,
Banc Texas Dallas, N. A., the Fifth Third Bank, Hunting-
E
DISCUSSION
A. Jurisdiction
In rendering its judgment, the district court stated that
it “determined pursuant to Rule 54(b) of the Federal
The grant of Rule 54(b) certification is reviewable
on appeal under an abuse of discretion standard. If the
district court abused its discretion in issuing the certifi-
cation, we lack jurisdiction over this appeal. Burr by
Burr v. Ambach, 863 F.2d 1071, 1074 (2d Cir. 1988)
(citing Sears, Roebuck & Co. v. Mackey, 351 U.S. 427,
437 (1956), Brunswick Corp. v. Sheridan, 582 F.2d 175,
183 (2d Cir. 1978)). The district court did not strictly
comply with the requirements for the issuance of a Rule
54(b) certification in this case. Nevertheless, we conclude
that we do have appellate jurisdiction to adjudicate the
merits of this case.
— — — 1
11a
Rule 54 (b) states, in pertinent part:
f
claim, or third-party claim, or when mu
are involved, the court may direct the entry of a
final judgment as to one or more but fewer than all
of the claims or parties only upon an express deter-
mination that there is no just reason for delay and
upon an express direction for the entry of judgment.
Unquestionably, there are several claims and multiple
parties involved in the instant dispute. At issue here is
whether all of the claims were specifically addressed by
the district court, and, if not, whether the Rule 54(b)
certification was properly granted.
BancTexas claims that the district court did not adjudi-
cate all of the claims of intervenors-appellants Miller and
Shaffer or of intervenor-appellee the Official Committee of
Equity Security Holders (Equity Committee). Specifi-
cally, BancTexas argues that the district court neglected
to address Miller's and Shaffer's request “that the Court
decree that the J&L Plan is to pay full promised plan
benefits with interest to each reti both
retroactively to January 1
9
4
22
.
5
i
that the court enter judgment
(1) On the First Claim against LTV and LTV
Steel, declaring the consents of LTV and LTV Steel
to the Terminations to have been unnecessary and in
violation of Section 363 of the Bankruptcy Code
(which regulates the trustee’s use, sale or lease of
property of an entity in bankruptcy and the rights
of third parties that have an interest in that prop-
erty) and Bankruptcy Rule 9019 (which concerns
compromise and arbitration of controversies affecting
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judgment
ord
the genuine
issue of fact and that the moving party is entitled to
judgment as a matter of law.” Cinema North Corp. v
Plaza at Latham Associates, 867 F.2d 135, 138 (2d Cir
1989) (citation omitted). As there were several material
facts in dispute in the present case, the district court
correctly denied the motion for summary judgment and
undertook a review of PBGC‘s restoration decision.
it
187
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ES
cl
722 F.2d 1043, 1051 (2d Cir. 1985);
New York Council, Ass'n of Civilian Technicians v. Fed-
eral Labor Relations Authority, T57 F.2d 502, 508 (2d
Cir.), cert. denied, 474 U.S. 846 (1985). Because
ERISA, bankruptcy and labor law are involved in the
ust be a showing on the administra-
15a
tive record that PBGC, before reaching its decision, con-
sidered all of these areas of the law, and to the extent
possible, honored the policies underlying them.
“One of Congress’ central purposes in enacting
[ERISA] was to prevent the ‘great personal tragedy’
suffered by employees whose vested benefits are not paid
when pension plans are terminated.” Nachman Corp. v.
Pension Benefit Guaranty Corp., 446 U.S. 359, 374
(1980) (quoting Senator Bentsen, 3 Legislative History
of the Employee Retirement Income Security Act of 1974,
94th Cong., 2nd Sess. 12 (Comm. Print 1976)). Accord-
ingly, PBGC was created to encourage the maintenance
of voluntary private pension plans, ensure the uninter-
rupted payment of pension benefits and maintain the
premiums established by PBGC at the lowest possible
level. ERISA section 4002, 29 U.S.C. § 1302; see Belland
v. Pension Benefit Guaranty Corp., 726 F.2d 839, 843 &
n.4 (D.C. Cir.), cert. denied, 469 U.S. 880 (1984).
The purpose of a Chapter 11 reorganization under the
Bankruptcy Code “is to restructure a business’s finances
so that it may continue to operate, provide its employees
with jobs, pay its creditors, and produce a return for its
stockholders.” H.R. Rep. No. 595, 95th Cong., 2d Sess.
220, reprinted in 1978 U.S. Code Cong. & Admin. News
5963, 6179. Debtors in reorganization receive an auto-
matie stay under section 362 of the Bankruptcy Code, 11
U.S.C. § 362, which prevents the recovery of any claim
against the debtor that arose prior to the commencement
of the bankruptcy case. Thus the results of a reorganiza-
tion are the shielding of a debtor from the financial pres-
sures imposed by its creditors, and the promotion of the
equitable distribution of the debtor’s assets to its credi-
tors. See NLRB v. Bildisco & Bildisco, 465 U.S. 513, 528
(1984); United States v. Whiting Pools, Inc., 462 U.S.
198, 203 (1983).
“A fundamental aim of the National Labor Relations
Act is the establishment and maintenance of industrial
16a
peace to preserve the flow of interstate commerce. Cen-
tral to achievement of this purpose is the promotion of
collective bargaining as a method of defusing and chan-
neling conflict between labor and management.” First
Nat'l Maintenance Corp. v. NLRB, 452 U.S. 666, 674
(1981) (citation omitted).
Although this case arose under ERISA, the competing
policies of bankruptcy and labor law must also be ac-
corded due weight. In fact, section 514(d) of ERISA,
29 U.S.C. § 1144(d), explicitly states that “[n]othing in
this subchapter shall be construed to alter, amend, mod-
ify, invalidate, impair, or supersede any law of the
United States (except as provided in sections 1031 and
1137 (e) of this title) or any rule or regulation issued
under any such law.” See also National Stabilization
Agreement of the Sheet Metal Indus. Trust Fund v. Com-
mercial Roofing & Sheet Metal, 655 F.2d 1218, 1223
(D.C, Cir. 1981), cert. denied, 455 U.S. 909 (1982).
Thus, here the policies and goals of ERISA must be
— along with those of bankruptey and labor
aw.
These bodies of law have been harmonized in several
instances. Section 1113 of the Bankruptcy Code, 11
U.S.C. § 1113, is meant to encourage collective bargain-
ing. In re Century Brass Prods., Inc., 795 F.2d 265, 273
(2d Cir.), cert. denied, 479 U.S. 949 (1986). Included
as subjects of mandatory bargaining under section 1113
are retiree benefits and pension and insurgnee benefits
for active employees. See id. at 274-75 (discussing Al-
lied Chem. & Alkali Workers of America, Local Union
No. 1 v. Pittsburgh Plate Glass Co., 404 U.S. 157
(1971)). Thus section 1113 of the Bankruptcy Code re-
flects labor law concerns. In 1986, we affirmed a district
court decision that specifically stated “(t]he Bankruptcy
Code and ERISA must be interpreted together.” In re
Baptist Medical Center of New York, Inc., 52 B.R. 417,
419 (E.D.N.Y. 1985), aff'd, 781 F.2d 973 (2d Cir. 1986)
17a
(per curiam). Hence, each of these areas of law is to be
interpreted in light of the policies and goals of the other
two.
In the instant case, a review of the administrative rec-
ord fails to satisfy us that PBGC adequately considered
the policies and goals of the bodies of law involved in this
case and their interaction with each other. Rather, PBGC
focused inordinately on ERISA. This failure renders
PBGC’s decision arbitrary and capricious.
Even when we examine the factors upon which PBGC
did base its decision, we find no support in the admin-
istrative record for the conclusion reached. Thus, the
restoration decision is insupportable as a matter of law.
1. Follow-on Plans
PBGC based its restoration decision partly on its find-
ing that the adoption of the 1987 CBA Plans, while LTV
was in Chapter 11 reorganization, constituted an abuse
of the termination insurance program. We disagree.
Although ERISA section 4047 states that PBGC may
restore terminated plans “in any such case in which
{[PBGC] determines such action to be appropriate and
consistent with its duties under this subchapter,” 29
U.S.C. § 1347, this does not lead to the conclusion that
PBGC may base a restoration decision on the establish-
ment of follow-ons. As indicated infra, the legislative
history of section 4047 and the intentions of ERISA,
bankruptcy and labor law belie such an assertion.
The legislative history of section 4047 reveals no indi-
cation that Congress intended the establishment of suc-
cessive benefit plans to be a ground for restoration. Con-
gress’ focus in enacting section 4047 was mandating res-
toration if there was an improvement in financial cir-
cumstances. “[A] terminated plan being operated by a
trustee as a wasting trust may be restored if, during the
period of its operation by the trustee, experience gains or
18a
increased funding make it sufficiently solvent.” H.R.
Conf. Rep. No. 1280, 93rd Cong., 2nd Sess., reprinted in
1974 U.S. Code Cong. & Admin. News 5038, 5158. Simi-
larly, the legislative history of SEPPAA bears no indica-
tion that Congress considered the establishment of fol-
low-on plans subsequent to an involuntary termination to
be a ground for restoration. See H.R. Rep. No. 241, 99th
Cong., And Sess., pt. 2, at 51-55, reprinted in 1986 U.S.
Code Cong. & Admin. News 685, 709-13. The legislative
history surrounding the most recent enactment of amend-
ments to ERISA, the Pension Protection Act of 1987,
Subtitle D of Title IX of the Omnibus Budget Recon-
ciliation Act of 1987, Pub. L. No. 100-203, §§ 9301-9346,
101 Stat. 1330, 1330-331—1330-374 (PPA), indicates
that Congress considered and rejected the idea of pro-
hibiting the establishment of follow-on plans and making
the establishment of such plans a basis for a restoration
decision. See H.R. Conf. Rep. No. 495, 100th Cong., Ist
Sess. 879-85, reprinted in 1987 U.S. Code Cong. & Admin.
News 2313-1245, 2313-1625—2313-1631. Although this
amendment governs only terminations occuring after De-
cember 17, 1987 and thus is not applicable to the instant
case, it reflects the continuing consensus not to include
the establishment of follow-ons as a basis for a restora-
tion decision.
Section 1113 of the Bankruptcy Code, 11 U.S.C. § 1113,
encourages collective bargaining for debtors in reorganiza-
tion. That LTV was in reorganization was no reason for
pension plans not to be the subject of bargaining. See
Century Brass, 795 F.2d at 274. LTV, in entering col-
lective bargaining with the Union, sought to ensure in-
dustrial tranquility by averting a strike. The Union was
bargaining to ensure that its members received benefits
commensurate with what had been promised them. Con-
struing the policies of labor law and bankruptcy law in
concert with ERISA’s goal of the continued payment of
pension benefits, we agree with the district court that the
establishment of the 1987 CBA Plans was acceptable,
19a
Not only is there no indication that the establishment
of follow-ons is impermissible, but PBGC offers no de-
tailed comparison of the two sets of plans to support its
conclusion that the 1987 CBA Plans were merely con-
tinuations of the old Plans. The record reflects only a
brief comparison of the two sets of plans in the affidavit
of C. David Gustafson, Manager of PBGC’s Actuarial
Policy Division. This is insufficient to support PBGC's
conclusion. While the 1987 CBA Plans did continue many
of the benefits that were guaranteed under the Plans,
there are several differences in the two sets of plans. For
instance, (1) none of the new programs under the 1987
CBA Plans are guaranteed by PBGC; (2) benefits under
the new Plans are provided through welfare plans, in-
surance companies or general corporate assets, whereas
benefits under the old Plans were provided under a single
defined benefit plan; (3) the 1987 CBA Plans have more
restrictive age and service eligibility requirements; and
(4) the length of service does not necessarily increase
the amount of some benefits under the new Plans. No-
where in the record is there a showing that PBGC under-
took an analysis of these differences.
Collective bargaining agreements can establish a con-
tractual obligation to provide pension benefits, following
termination of a plan, in excess of the amounts guaran-
teed by PBGC. ERISA contains no restriction on the
employees’ rights to receive benefits not guaranteed under
ERISA. See Murphy v. Heppenstall Co., 635 F.2d 233,
237-89 (3d Cir. 1980), cert. denied, 454 U.S. 1142
(1982). From this it follows that the establishment of
the 1987 CBA Plans, which contains some programs which
are not guaranteed by PBGC and thus may be regarded
as being in excess of the guaranteed benefits, does not
violate any provisions of ERISA.
PBGC places substantial reliance on three of its opin-
ion letters which express its policy against follow-on plans
and identify factors that may result in the restoration
4
First, the opinion letters all involve cases of volun
11173
1111105
1115611 i
4472523
+ 1271!
ployees
obliga
tarily terminated by PBGC.
evidence that LTV contempla
in the new Plans or entered into
an attempt to assure its em
nation level. In contrast,
fits while circumventing its
14127 118
4 idl
111
Hh
2171
110
ny
52
1111
For the foregoing reasons, the establishment of the
follow-on plans cannot justify PBGC’s restoration
decision.
22a
$120 million. According to the figures before us, LTV
Steel's net income for 1987 was estimated at $238.5 mil-
lion. The projected operating income of LTV for Janu-
ary through May 1987 was $118.8 million, whereas the
actual operating income was $163.7 million. Reviewing
these data, the Analysis stated that “[b]ased on LTV’s
own cash flow projections, it appears that the debtor will
generate more than enough cash during the immediate
future (1987 and 1988) to support the reinstatement of
the pension obligation.”
This conclusion is problematic. The first problem with
PBGC’s restoration decision is that it was based partly
on the fact that LTV’s actual operating income for the
first five months of 1987 had surpassed the amounts
projected in the 1987-1988 Operating Plan. But, five
months is too short a period of time to determine an
income trend. A longer period of time should have been
used to determine whether the improved financial condi-
tions would have a long-lasting effect on LTV. Addi-
tionally, as the district court pointed out, “PBGC’s cal-
culation was based on two fundamental, yet unexplained
and unexamined assumptions.” One assumption was that
LTV would be able to obtain IRS waivers of its funding
contribution requirements for the years 1984-1986. The
Analysis fails to take into account that the IRS had
previously denied LTV’s waiver request for 1985 and
had revoked its waiver for 1984. The record discloses
no reason to believe that the IRS, after having denied
previous waiver requests, would grant such requests in
1987. Accordingly, if the Plans were to be restored,
LTV would immediately become liable for contributions
that it owed for the years 1984-1986, thereby seriously
impairing its financial ability to fund the Plans.
The other unexplained assumption was that the $50
million savings resulting from job reductions made pur-
suant to the 1987 CBA would be preserved in subsequent
bargaining agreements. The Union made these conces-
23a
sions because it was faced with a choice between receiv-
ing none of the nonguaranteed benefits or receiving some
of them if it made concessions. If PBGC restores the
Plans, the Union will get back all of its benefits auto-
matically. Under these circumstances, the Union will
have no incentive to make similar concessions. Thus
there is no basis for assuming that the Union will make
concessions following restoration of the Plans.
Because these two assumptions are unjustified, the
basis for the Analysis’ conclusion that LTV could sup-
port the reinstatement of the Plans is substantially
undermined.
b. Effect of Chapter 11 Reorganization
PBGC did not effectively assess the impact that LTV’s
status as a debtor in Chapter 11 reorganization had on
its financial condition. As a Chapter 11 debtor, LTV was
able to reschedule some of its debt obligations and in
effect free up its cash flow. Hence, looking at LTV’s cash
flow figures, it might appear that LTV’s financial posi-
tion had improved, when in reality, the apparent improve- -
ment was directly linked to its basic financial plight.
A second factor related to LTV’s position as a Chapter
11 debtor in reorganization that must be considered is
the status of the claim for payment into the pension
plans. Pension benefits accrue to employees as a result
of their past labor on behalf of the employer. In the in-
stant case, the employees of LTV have given their labor
in consideration for receiving pension benefits from LTV.
This occurred prior to LTV’s bankruptcy filing. Thus,
any claims arising out of LTV’s obligation to pay into
the pension fund plans are pre-petition debts. See
Trustees of the Amalgamated Ins. Fund v. McFarlin’s,
Inc., 789 F.2d 98, 103-04 (2d Cir. 1986). Pre-petition
debts are satisfied by a fair distribution of the debtor’s
assets, each creditor receiving a proportionate share of
the amount of its claim. Hence, any additional money
24a
that LTV has must be distributed fairly among the
creditors, with the pension plans receiving no special
priority. When all the pre-petition claims of LTV’s other
creditors are considered, and they receive their fair
share of any additional funds, LTV’s apparent ability
to fund the Plans suffers.
The district court concluded that restoration did not
implicate the automatic stay provisions of the Bankruptcy
Code, but that if it did, restoration would be exempt
from the automatic stay under section 362 (b) (4) of the
Code, 11 U.S.C. 8 362 (b) (4), as an act to enforce
PBGC’s regulatory authority in furtherance of the public
health and welfare. We are less convinced than the dis-
trict court that the automatic stay provisions are not
implicated. However, we need not decide this question for
we agree with the district court’s alternative theory that
restoration is exempt from the automatic stay. This hold-
ing is consisent with Congress’ purpose in enacting
ERISA—protecting the public welfare and the “continued
well-being and security of millions of employees” who
participate in pension plans. 29 U.S.C. § 1001 (a).
ce. PBGC’s Focus on Short Term Factors
A major problem with PBGC’s analysis of LTV’s
financial circumstances is that it focuses principally on
factors that relate to LTV’s short term economic condi-
tion. While LTV may have been able to fund the Plans
for a limited period of time because of the improvement
in its financial circumstances, the administrative record
included no information addressed to the long term ability
of LTV to fund the Plans.
ERISA is concerned with the promulgation and main-
tenance of plans that are viable in the long term as
opposed to those that are uncertain or “pay-as-you-go.”
See 29 U.S.C. £1002(31). Likewise, section 1.401-1
(b) (2) of the IRS Regulations, 26 C. F. R. § 1.401-1
(b) (2) (1988), which pertains to deferred compensation
25a
and compliance with which is required for PBGC insur-
ance, see 29 U.S.C. § 1321(a), states that “(t]he term
‘plan’ implies a permanent as distinguished from a tem-
porary program.” Here, if the restored plans were viable
only for a short period of time, they might in the near
future once again have to be re-terminated, thereby de-
feating the purposes and objectives of ERISA and the
tax laws.
We note that nowhere in the administrative record is
there any evidence that PBGC assessed the possibility
that the Plans would have to be re-terminated. ERISA
contains no special provisions governing re-termination;
however, the standards would be the same as for an ini-
tial termination. If in the near future LTV were once
again found unable to adequately fund the Plans, the
resulting vacillation in agency policy would lead to un-
certainties on the part of the retirees, plan sponsors,
creditors and the government. Such uncertainty is to be
avoided where possible. See New York Council, Ass’n
of Civilian Technicians, 757 F. 2d at 508.
In sum, the administrative record does not support
PBGC’s conclusion that LTV could afford to fund the
pension plans. In contrast to sound administrative
agency decisionmaking, in reaching its deterftf tion of
LTV’s financial viability, PBGC placed undue reliance
on some factors and not enough on others.
3. Willingness
The third articulated basis for PBGC’s decision was
LTV’s demonstrated willingness to fund pension plans.
On appeal, PBGC contends that this rather amorphous
factor is “subsumed in the other two” and therefore need
not be addressed separately. We agree and thus decline
to discuss it further.
In summary, we are left with the conclusion that
PBGC’s restoration decision was arbitrary and capricious.
26a
See Motor Vehicle Mfrs. Ass’n v. State Farm Mutual
Automobile Ins. Co., 463 U.S. 29, 43 (1983).
4. PBGC’s Procedural Approach
Section 4047 of ERISA, 29 U.S.C. § 1347, does not
discuss the procedures that are to be followed by PBGC
when reaching a restoration decision. However, when
assessing an agency’s actions under the arbitrary and
capricious standard, it is a principle of fundamental
fairness that
[a] party is entitled ... to know the issues on
which decision will turn and to be apprised of the
factual material on which the agency relies for deci-
sion so that [it] may rebut it. Indeed, the Due
Process Clause forbids an agency to use evidence in
a way that forecloses an opportunity to offer a con-
trary presentation.
Bowman Transp., Inc. v. Arkansas-Best Freight System,
Inc., 419 U.S. 281, 288 n.4 (1974). Consistent with this
view, we have previously held that an agency must “pro-
ceed[] in accordance with ‘ascertainable standards,’ and
provide[] a statement showing its reasoning when apply-
ing the standards.” Patchogue Nursing Center v. Bowen,
797 F.2d 1137, 1143 (2d Cir. 1986) (quoting Holmes v.
New York City Housing Authority, 398 F.2d 262, 265
(2d Cir. 1968)), cert. denied, 479 U.S. 1030 (1987).
In the instant case, PBGC neither apprised LTV of the
material on which it was to base its decision, gave LTV
an adequate opportunity to offer contrary evidence, pro-
ceeded in accordance with ascertainable standards by
which to evaluate when a plan sponsor’s financial condi-
tion has so improved as to warrant restoration, nor pro-
vided a statement showing its reasoning in applying
those standards. Failure to do any of these things ren-
ders the decision arbitrary and capricious.
27
CONCLUSION
On remand, PBGC may be able to justify its decision.
However, based on the administrative record presented
to the district court and to us, its decision cannot be up-
held. Because PBGC’s decision was not sustainable on
the administrative record, the district court provided the
appropriate remedy by vacating PBGC’s Restoration No-
tice and remanding the matter to PBGC. See Vermont
Yankee Nuclear Power Corp. v. Natural Resources De-
fense Council, Inc., 435 U.S. 519, 549 (1978); Camp v.
Pitts, 411 U.S. at 143. On remand, PBGC should con-
sider all of the issues, including those raised by the
Equity Committee that previously were left unresolved.
Affirmed.
28a
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
IN RE CHATEAUGAY CORPORATION, REOMAR, INC.,
THE LTV CORPORATION, et al.,
Debtors.
87 Civ. 6863 (RWS)
PENSION BENEFIT GUARANTY CORPORATION,
—against— Petitioner,
THE LTV CORPORATION, et al.,
Respondents.
87 Civ. 7261 (RWS)
PENSION BENEFIT GUARANTY CORPORATION,
ins Plaintiff,
THE LTV CorPoRATION, and LTV STEEL CoMPANY, INC.,
Defendants.
OPINION
APPEARANCES:
Attorneys for Plaintiff:
PENSION BENEFIT GUARANTY CORPORATION
2020 K Street, N. W.
Washington, D. C. 20006 .
By: Gary M. Forp, General Counsel
CAROL CONNOR FLOWE, Deputy General Counsel
LONIE HASSEL, Assistant General Counsel
WILLIAM G. BEYER, Associate Genera] Counsel
FRANK MCCULLOCH, Senior Counsel
JEANNE K. BECK, Esq.
JAMES J. ARMBRUSTER, Esq.
JOHN FosrER, Esq.
PAULA CONNELLY, Esq.
Of Counsel
CLEARY, GOTTLIEB, STEEN & HAMILTON, EsQs.
One State Street Plaza
New York, New York 10004
By: GEORGE WEISZ, Esq.
Of Counsel
Attorneys for Defendants The LTV Corporation, et al.:
DAVIS, POLK & WARDWELL, ESQs. “
One Chase Manhattan Plaza
New York, New York 10005.
By: LEWIS B. KADEN, Esq.
KAREN E. WAGNER, EsQ.
SHARON KATZ, Esq.
JAMES GODDARD, EsqQ.
DOUGLAS BRANDON, Eso.
JOAN GRECO, EsQ.
Of Counsel
LEVIN & WEINTRAUB & CRAMES, Esq.
225 Broadway
New York, New York 10007
By: MICHAEL J. CRAMES, Esq.
HERBERT S. EDELMAN, Esq.
Of Counsel
LEBOEUF, LAMB, LEIBY & MACRAE, Esds.
1333 New Hampshire Avenue, N. W.
Washington, D. C. 20036
By: FRANK CUMMINGS, Esq.
Of Counsel
Attorneys for the Intervenors:
KRAMER, LEVIN, NESSEN, KAMIN & FRANKEL, ESQS.
Attorneys for the LTV Bank Group
919 Third Avenue
New York, New York 10022
By: JOEL B. ZWEIBEL, Esq.
GEOFFREY M. KALMus, Esq.
MICHAEL J. NASSAU, Esq.
80a
MICHAEL J. DELL, Esq.
PETER V. PANTALEO, Esq.
ALICE A. THOMPSON, Esq.
JEFFREY S. TRACHTMAN, Esq.
NANCY J. MRAZEK, Esq.
Of Counsel
Stroock & STROOCK & LAVAN, EsQs.
Attorneys for the Official Committee of
- Unsecured Creditors of The LTV Corporation
Seven Hanover Square
New York, New York 10004
By: LAWRENCE M. HANDELSMAN, Esd.
MARK A. SPEISER, Esq.
BRIAN M. CoGAN, Esq.
LAUREN G. KLEIN, Esq.
BARRY M. SABIN, Esq.
Of Counsel
BLANK, ROME, CoMIsKY & McCAULEY, Esq.
Attorneys for the Subcommittee of Parent Creditors
of the Official Committee of Unsecured Creditors
of The LTV Corporation
Four Penn Center Plaza
Philadelphia, Pennsylvania 19103
By: RAYMOND L. SHAPIRO, Esq.
Morris L. WE!SBERG, Esq.
THOMAS E. BIRON, Esq.
FAITH R. GREENFIELD, Esq.
REGINA STANGO KELBON, Esq.
Of Counsel
GRAYDON, HEAD & RITCHEY, Esds.
Attorneys for The Fifth Third Bank
P. O. Box 6464
Cincinnati, Ohio 45201
By: ERIC C. OKERSON, Esq.
MARGARET WEINGARTNER BURGIN, Esq.
Of Counsel
31a
HAHN LOESER & PARKS, Esos.
Attorneys for The Huntington National Bank
800 National City E. 6th Building
Cleveland, Ohio 44114
By: LEE D. PoWAR, Esq.
LAWRENCE E. Oscar, Esq.
Of Counsel
SHEARMAN & STERLING, Es@Qs.
Attorneys for Citibank, N.A.
153 East 53rd Street
New York, New York 10022
By: Davin J. MARK, Esq.
Of Counsel
MYERSON & KUHN, ESQs.
Attorneys for Official Committee of Equity Security
Holders of the LTV Corporation and LTV Steel
Company, Inc.
237 Park Avenue
New York, New York 10017
By: Epaar H. Booru, Esq.
CLAUDE D. MONTGOMERY, Esq.
PETER D. WOLFSON, Esq.
RICHARD LEVY, IR., Esq.
JANET SHPRINTZ, Esq.
SARA CHENETZ, Esq.
Of Counsel
BUCHANAN INGERSOLL, P. C.
Attorneys for David H. Miller and
William H. Shaffer
600 Grant Street .
Pittsburgh, Pennsylvania 15219
By: R.A. KING, Esq.
KENNETH R. BRUCE, EsQ.
Of Counsel
32a
MOUND, CoTTON & WOLLAN, Esq.
Attorneys for David H. Miller and
William H. Shaffer
125 Maiden Lane
New York, New York 10038
By: STUART COTTON, Esq.
Of Counsel
HAYNES AND BOONE, EsgQs.
Attorneys for BancTexas Dallas, N.A.
3100 First Republic Bank Plaza
901 Main Street
Dallas, Texas 75202
By: ROBIN E. PHELAN, Esq.
MARK X. MULLIN, Esq.
Of Counsel
Amicus Curiae:
COHEN, WEISS AND SIMON, Esos.
Amicus Curiae for United Steelworkers of America
330 West 42nd Street
New York, New York 10036
By: BRUCE H. SIMON, Esq.
RICHARD M. SELTZER, Esq.
SOPHIA E. Davis, Esq.
Of Counsel
NORTHEAST OHIO LEGAL SERVICES
Amicus Curiae for Solidarity USA, Inc.
700 Metropolitan Tower
Youngstown, Ohio 44503
By: STAUGHTON LYND, Esq.
Of Counsel
LEGAL SERVICES FOR THE ELDERY
Amicus Curiae for Solidarity USA, Inc.
132 West 43rd Street—3rd Floor
New York, New York 10036
By: JONATHAN A. WEISS, Eso.
Of Counsel
33a
TABLE OF CONTENTS
Page
POD etc
LTV’s Financial Difficulties and Chapter 11 Filing.
The 1986 Collective Bargaining Agreement
The PBGC and Title IV of ER IS
The PBGC’s Involuntary Termination of the Plans..
The USWA Lawsuit for Non-Guaranteed Benefits..
The 1987 Interim Collective Bargaining Agree-
c
Court Approval of the 1987 C44
The Restoration of the Plans .......................------------+--
The Notice of Restoration
Prior Proceedings in this Court
111 ö K
I. The Automatic Sta ˖,e4„kek4e
II. The Nature of the PBGC’s Claim
III. Restoration Does Not Violate the Automatie
Eee en
IV. Section 362(b) (4) of the Code Exempts Resto-
11111110 ————— —-—
The Enforcement Action
V. The Scope of ReviWWWmw .
VI. The PBGC’s Restoration Authority ....................
VII. The Restoration Decision was Arbitrary and
8 ——ů——
A. The 1987 CBA Plans
B. LTV Steels’ Improved Financial Condition.
VIII. The PBGC’s Procedures Were Inadequate........
.. ³ ee TERE PROTO Ie TNO On
m_—
34a
SWEET, D. J.
The Pension Benefit Guaranty Corporation (“PBGC”’)
has moved pursuant to Fed.R.Civ.P. 56 for an order
granting summary judgment directing the LTV Corpora-
tion (“LTV”) and LTV Steel Company (“LTV Steel”)
to comply with the PBGC’s Notice of Restoration (“Res-
toration Notice”) dated September 22, 1987 and to re-
sume full responsibility for funding and administering
three of LTV Steel’s four major pension plans, which
were terminated on January 12, 1987. LTV, for itself
and on behalf of the other debtors and debtors-in-posses-
sion in these cases, has moved for an order decreeing
and adjudging that the PBGC acted in violation of the
automatic stay of section 362 of the Bankruptcy Code
(the Code“) and a restraining order of the Bankruptcy
Court by issuing the Restoration Notice and thereafter
commencing an action to enforce it.
These motions in the context of the facts presented
raise difficult and deeply perplexing issues concerning the
reorganization of a corporate entity that includes the
second largest steel company in the United States, the
powers of a public corporation created by Congress to
protect the pension benefits of more than 30 million
American workers and their families, and the effect of
congressionally sanctioned collective bargaining between
the United Steelworkers of America (“USWA”) and
LTV. Underlying these issues is the fundamental ques-
tion: what processes and institutions are to be responsible
for the casualties suffered by a basic American industry
that has been battered by intensive and successful com-
petition from abroad?
No central authority in this litigation has spoken to
this bedrock problem. No U.S.A., Inc. has been heard,
or even exists. The issues have, therefore, necessarily~
been parsed in terms of the existing body of bankruptcy,
labor and pension benefit law, largely created before the
present exigencies existed. The threshold resolution of
35a
these competing considerations is, indeed, a daunting
task but one assisted by excellence of counsel who have
striven with some success to order these complexities.
Whatever follows on remand, review or in the halls of
Congress, it is this court’s initial obligation to find the
facts and to reach conclusions by the application of estab-
lished analysis, where it exists, leading hopefully to the
earliest possible resolution of the interests at issue.
The court has reached the following conclusions. First,
with respect to the automatic stay, although the PBGC’s
claims against LTV Steel under Title IV are prepetition
claims, restoration per se does not affect a recovery on
those claims or in any other way constitute- an act to
possess or to control LTV Steel's assets. Restoration is
simply one regulatory component of the federal pension
insurance program that protects the nation’s employees,
and nothing in the Code or in ERISA justifies a debtor’s
reliance on that program except in cases of severe hard-
ship. Second, with respect to the restoration decision
itself, the 1,592 page Administrative Board (the “PBGC
Record” or “Record”) submitted by the PBGC in this
case does not support the PBGC’s decision to restore the
Plans on any of the asserted grounds. There is no factual
or legal basis for the PBGC’s finding that LTV has
abused the pension termination insurance program, and
the record is not sufficiently developed to permit a find-
ing that LTV Steel’s financial condition has improved to
the point where it can afford to sponsor its previously
terminated plans.
Therefore, LTV’s application to enforce the automatic
stay by declaring restoration null and void is denied,
as is the PBGC’s motion for summary judgment. These
findings and conclusions are described in the following
portions of this opinion which set forth the context of
the litigation, its prior proceedings, the issues raised,
the resolution of the issues, and the conclusions reached
at this stage of the litigation.
36a
FACTS
LTV’s 1986 Financial Difficulties and Chapter 11 Filing
LTV is a Delaware corporation active in four basic
industries: steel, aircraft products, missiles and elec-
tronics and energy products. LTV’s subsidiaries include
LTV Aerospace and Defense Company, AM General Cor-
poration, LTV Energy Products Company and LTV
Steel, the nation’s second largest steel operation, which
was created by the merger of Jones & Laughlin Steel
Company, Youngstown Sheet & Tube Company and Re-
public Steel Corporation.
Directly and through its subsidiaries, LTV has ad-
ministered approximately thirty defined benefit pension
plans, including the three plans at issue here: the Jones
& Laughlin Hourly Pension Plan (“J & L Hourly Plan”) ;
the Jones & Laughlin Retirement Plan (“J & L Salaried
Plan“); and the Pension Plan of Republic Steel Corpora-
tion Dated and Effective as of March 1, 1950 (“Repub-
lie Hourly Plan”) (collectively the Plans“). The Plans
are covered by the Employee Retirement Income Security
Act of 1974 (“ERISA”), as amended by the Single-
Employer Pension Plan Amendment Act of 1986
(“SEPPAA”)?, 28 U.S.C. §§ 1301 et seg. (1987 Supp.),
and are subject to the minimum funding standards in
1A fourth LTV Steel pension plan, the Republic Salaried Plan,
which was terminated involuntarily in September 1986, was not
restored by the PBGC.
2 On December 22, 1987 Congress amended Title IV of ERISA
with the enactment of the Pension Protection Act of 1987, Subtitle
D of Title IX of the Omnibus Budget Reconciliation Act of 1987
(“OBRA”), Pub.L.No. 100-203, 101 Stat. 1330 (Dec. 22, 1987).
Because the Pension Protection Act antedated and, thus, does not
apply to the events that give rise to this litigation, the description
of ERISA’s statutory scheme set forth below does not reflect the
1987 amendmens, and all citations to ERISA, as amended by
SEPPAA, are to U.S.C. (1987 Supp.), except where expressly
noted otherwise.
37a
section 302 of ERISA, 29 U.S.C. § 1082, and section 412
of the Internal Revenue Code (“IRC’’), 26 U.S.C. § 412.
LTV’s intent in acquiring and merging three major
steel companies was to combine them, shut down ex-
traneous or outmoded facilities, and emerge with a
streamlined, efficient steel company that could survive
the extreme financial pressures placed on the steel indus-
try in the late 1970s and early 1980s. The streamlining
process resulted in massive lay-offs and premature re-
tirements and corresponding massive pension liabilities.
By 1986, LTV Steel had an extraordinary ratio of 77,182
retirees to 24,544 active workers, over 3 to 1.
On July 17, 1986, LTV and substantially all of its
active subsidiaries, including LTV Steel, filed petitions
for reorganization under Chapter 11 of Title 11 of the
Code in the United States Bankruptcy Court for the
Southern District of New York, but continued to manage
and operate their businesses and properties as debtors-
in-possession. The filing of the petitions triggered the
automatic stay provisions of section 362 of the Code, and
on July 17, the bankruptcy court issued a restraining
order enforcing the provisions of the stay.
In connection with its ongoing financial difficulties,
LTV Steel had resulted in 1985 funding waivers from
the Internal Revenue Service (“IRS”) for its minimum
funding contributions to the Plans for the 1984 plan
year.“ The IRS granted the waiver request, permitting
LTV Steel to amortize over 15 years the contribution of
more than $170 million due for the 1984 plan year.
In 1986 LTV Steel again requested contribution waivers
for over $200 million owed to the Plans for the 1985 plan
year and the amount of amortization for the 1984 plan
year. The IRS denied that waiver request in November
Under ERISA, unfunded benefit liability is amortized over time
through annual payments by the plan sponsor into the plan. These
payments are called minimum funding contributions.
38a
1986 and revoked LTV Steel’s 1984 waiver due to its
failure to continue contributions after its Chapter 11 fil-
ings. As a result, LTV Steel immediately owed more
than $350 million in past unfunded contributions to the
Plans for the two years.“ LTV Steel made some contribu-
tions in 1986 to amortize the 1984 waivers, but made no
contributions for the 1985 plan year. In addition to LTV
Steel’s accumulated funding deficiencies, at the time LTV
entered Chapter 11, the total present value of LTV Steel’s
future pension liabilities exceeded $2 billion.
The 1986 Collective Bargaining Agreement
On April 1, 1986, a few months before its Chapter 11
filing, LTV Steel had concluded negotiations for a collec-
tive bargaining agreement (“1986 CBA”) with the
USWA. The USWA had agreed to concessions which re-
duced labor costs by $3.44 per hour. In return, the 1986
CBA provided for an employee profit sharing and stock
plan pursuant to a new Employee Investment Program
(“1986 EIP”) which would be funded with stock in lean
years and cash in profitable years. The 1986 CBA in-
cluded the Jones & Laughlin and the Republic Pension
Agreements (“1986 Pension Agreements”), pursuant to
which LTV Steel established the J & L Hourly Plan and
the Republic Hourly Plan. The 1986 Pension Agreements
did not limit LTV Steel’s obligation to provide benefits
in the event of termination of any pension agreements
or termination of the pension plans or any pension trusts.
Under the pension agreements, LTV Steel’s obligations
to fund and pay benefits continue beyond any termina-
tion of the agreements themselves.“
18175 million of LTV Steel's obligation had been secured by a
pledge of stock of LTV’s aerospace and defense subsidiary.
5 Paragraph 10.2 of both the J & L and the Republic Pension
Agreements provides: “Any benefit properly payable pursuant to
this Agreement shall continue to be payable, notwithstanding the
termination or expiration of this Agreement.”
39a
The PBGC and Title IV of ERISA
The PBGC is a wholly-owned United States govern-
ment corporation that was established in section 4002 of
ERISA, 29 U.S.C. § 1302, to insure pension benefits
under terminated pension plans and to administer and
enforce the provisions of Title IV of ERISA which
creates a pension plan termination insurance system.
The PBGC’s regulatory, investigatory and enforcement
authority is set forth in sections 4002 and 4003 of
ERISA. The PBGC, for example, may adopt such rules
and regulations “as may be necessary to carry out the
purposes of [Title IV],” 29 U.S.C. § 1302 (b) (3), and
“may make such investigations as it deems necessary to
enforce any provision of [Title IV],” 29 U.S.C. § 1303
(a). Moreover, under section 4003(e)(1) of ERISA,
the PBGC may bring “[cJivil actions .. for appro-
priate relief, legal or equitable or both, to enforce the
provisions of [Title IVI.“ 29 U.S.C. § 1303 (e) (1).
Title IV sets forth procedures for the termination of
single-employer pension plans by plan administrators,
29 U.S.C. § 1341, or by the PBGC, 29 U.S.C. § 1342, and
permits the appointment of the PBGC as the trustee of
a terminated plan. Id. The statute requires the PBGC
to guarantee the payment of nonforfeitable benefits under
terminated plans, subject to certain prescribed limita-
tions. See 29 U.S.C. §§ 1322, 1322b, 1342. This statutory
guarantee is funded primarily by annual insurance pre-
miums paid by the administrators of covered plans.
PBGC funds, however, also consist of the amount of em-
ployer liability payments collected under section 4062 of
ERISA. 29 U.S.C. § 1362; see also 29 U.S.C. § 1305.
Section 4062 of ERISA imposes liability on employers
whose plans terminate with insufficient assets to pay
guaranteed benefits. Such employers are liable to the
PBGC for part of the terminated plan’s unfunded guar-
anteed benefits. See 29 U.S.C. § 1362 (b). Section 4068
40a
of ERISA creates a lien in favor of the PBGC for the
amount of its claim under section 4062 which has the
priority status of a tax lien under 26 U.S.C. § 6323.
See 29 U.S.C. § 1368 (a), (e). In addition, an employer
may be liable to a trust established by the PBGC for plan
participants for the outstanding amount of certain un-
funded “benefit commitments” that exceed the guaranteed
benefits payable by the PBGC. See 29 U.S.C. §§ 1342(i),
1362(c), 1349.“ An employer may also be liable to the
PBGC in PBGC’s capacity as the statutory trustee of
a terminated plan for the plan’s accumulated funding
deficiencies, for the outstanding balance of waived fund-
ing deficiencies, and for the outstanding balance of the
amount of previously allowed decreases in the minimum
funding standard. See 29 U.S.C. § 1362 (d).
The Pension Protection Act of 1987 (“PPA”) includes
amendments to ERISA that enhance the PBGC’s rights
of several major respects with respect to plans terminated
on or after December 27, 1987. For example, the PPA
amendments allow the PBGC to perfect a lien upon all
of the property of each member of a plan sponsor’s “con-
trolled group“ for missed minimum funding contribu-
tions and make all members responsible for plan fund-
ing obligations when due. Prior to these amendments,
controlled group liability for certain unfunded benefits
®Sections 4042(i), 4062(c) and 4049 of ERISA, 29 U.S.C.
§§ 1342 (i), 1362(c), 1349, were either repealed or substantially
modified by the Pension Protection Act of 1987. A plan adminis-
trator’s liability to the PBGC for the “total amount of unfunded
benefit liabilities” is now governed by section 4062 (b) (1) (A) of
ERISA. See 29 U.S.C. § 1362 (b) (1) (A) (1988 Supp.). a
7 The PPA amendments define “controlled group” to include the
plan sponsor and “all other persons under common control” with
the sponsor within the meaning of the Internal Revenue Code
(“IRC”) and Regulations thereunder. See 29 U.S.C. § 1301 (a) (14)
(1988 Supp.). Under the IRC and Regulations, LTV Aerospace
and LTV Steel are members of the same controlled group. See 26
U.S.C. § 414 b), (e); Treas. Reg. §11.414(c) -1 through -5.
4la
became fixed only upon plan termination. The PPA
gives the PBGC the right, upon plan termination, to —
100% reimbursement from controlled group members for
the total amount of unfunded benefit liabilities.” See
29 U.S.C. § 1362 (b) (1) (A) (1988 Supp.). Previously
the PBGC’s reimbursement claim upon termination was
effectively limited to 75% of the unfunded guaranteed
peng hyd — oe do not apply to pension
„ ans at issue he i
— uA.
The PBGC’s Involuntary Termination of the Plans
Because of the Plans’ failure to meet ERISA’s mini-
mum funding requirements and LTV Steel’s precarious
financial condition, the PBGC reviewed the Plans’ status
in December 1986 under ERISA’s involuntary termina-
tion provisions. The PBGC determined that the Plans
were severely underfunded, even though they had suf-
ficient assets to pay benefits then in pay status for sev-
eral years without additional contributions. The under-
funding for guaranteed benefits as of December 1986
was estimated at more than $2 billion. Moreover, the
underfunding was expected to increase by an estimated
$65 million in 1987 and by an additional 863 million in
1988. The estimated additional cost to the Plans of shut-
down benefits was in the range of $300-$700 million for
more than 6,000 entitled participants.
On December 16, 1986 LTV informed PBGC by letter
that “because LTV is currently in reorganization under
Chapter 11 of the Bankruptcy Code, LTV cannot and
will not make contributions to the Plans to eliminate
the accumulated funding deficiencies,” and that LTV
does not intend, and is not likely to have the ability
to fund the Plans for future years.” Thereafter on
January 12, 1987, PBGC initiated proceedings under sec-
tion 4042 of ERISA, 29 U.S.C. § 1342, to terminate the
Plans and to be appointed Statutory trustee, on the
42a
grounds that termination was necessary to avoid an un-
reasonable deterioration of the Plans’ financial condition
or an unreasonable increase in the liability of the PBGC’s
insurance funds. LTV, the administrator of the Plans,
consented to the terminations. On January 12, this court
issued consent orders terminating the Plans effective
January 13, 1987 and appointing the PBGC as statutory
trustee.*
As of the termination date of January 13, 1987, the
Plans’ assets were insufficient to pay the benefits guaran-
teed under Title IV of ERISA. Accordingly, PBGC be-
came responsible for paying Plan benefits to the extent
of the statutory guarantee in ERISA. See 29 U.S.C.
§ 1322. The PBGC guarantees only nonforfeitable bene-
fits and does not guarantee benefits becoming nonfor-
feitable solely on account of the plan termination. /d.;
29 C.F.R. § 2613.6 (1987). In addition, the PBGC’s
statutory guaranty does not cover certain amounts and
types of benefits that had been provided under the Plans.
Following termination of the Plans, therefore, pay-
ments of current pension benefits payable under the 1986
Pension Agreements were reduced to the extent they
were not guaranteed by the PBGC. Certain early retire-
ment, disability, and surviving spouse benefits not guar-
anteed by the PBGC were terminated completely. As a
result, more than 7,000 LTV pensioners under the age
of 62 immediately had their monthly pensions reduced
by as much as $400. Thousands of retirees who were
solely dependent on pension benefits for food, clothing,
housing and other essentials received substantially re-
duced pension benefits foliowing termination. Thousands
of current employees who had worked in return for a
In re Jones & Laughlin Hourly Pension Plan, No. 87 Civ. 0232
RO (S.D.N.Y. Jan. 12, 1987); Jn re Jones & Laughlin Retirement
Plan, No. 87 Civ. 0235 RO (S.D.N.Y. Jan. 12, 1987); In re Pension
Plan of Republic Steel Corporation Dated and Effective as of March
1, 1950, No. 87 Civ. 0234 RO (S.D.N.Y. Jan. 12, 1987).
43a
contractually guaranteed right to early retirement there-
after forfeited such benefits and stopped accrual of serv-
ice for any pension plan. Surviving spouses of employees
who died while actively employed also lost certain pension
benefits.
The USWA Lawsuit for Non-Guaranteed Benefits
In response to the hardship inflicted upon its members
by the Plan terminations, on January 16, 1987 the
USWA initiated an adversary proceeding in the bank-
ruptcy court seeking payment under the 1986 Pension
Agreements.“ The USWA lawsuit alleged that LTV
Steel’s failure to provide the full benefits set forth in the
Plans constituted an abrogation of the 1986 CBA and
a violation of section 1113 of the Code. The PBGC inter-
vened and opposed the USWA’s request that LTV Steel
pay the nonguaranteed portion of the benefits, arguing
that requiring “the Debtor to continue to pay the pre-
petition claims of retirees outside of a Chapter 11 plan
of reorganization” would be inconsistent with ERISA
and “would pervert . .. the collection scheme for pre-
petition debt embodied in the Bankruptcy Code.”
The USWA lawsuit represented only one of the meas-
ures the USWA was prepared to take against LTV Steel.
The USWA had inflicted a damaging strike on the
Wheeling-Pittsburgh Steel Company, also a Chapter 11
debtor, for failure to pay pension benefits after its plan
termination. At the very beginning of the LTV cases,
the USWA had struck Indiana Harbor, LTV Steel’s most
® Immediately upon learning of the terminations, the USWA, as
an intervenor, moved to vacate the consent orders and obtain an
evidentiary hearing on the PBGC’s request for a court order
approving the terminations. The district court denied the motions
to vacate. The USWA appealed and the Court of Appeals for
the Second Circuit affirmed the district court’s orders. Jones &
Laughlin Hourly Pension Plans v. The LTV Corp., 824 F.2d 197
(2d Cir. 1987).
44a
important facility, in response to LTV’s inability to pay
certain retiree benefits. Before the strike spread, LTV
Steel obtained court authority to pay these benefits. See
In re Chateaugay Corp., 64 B.R. 990 (S.D.N.Y. 1986).
LTV Steel was well aware, therefore, that the USWA
could take powerful action to compel the payment of
benefits under the 1986 CBA.
The 1987 Interim Collective Bargaining Agreement
In an effort to resolve the USWA lawsuit, LTV Steel
obtained bankruptcy court approval in April 1987 to
make a single hardship payment to each retiree at a cost
of $6.7 million and thereafter began negotiating an in-
terim agreement with the USWA. Following weeks of
intense bargaining, negotiators for the USWA and LTV
Steel reached a tentative agreement on May 13, which
was rejected by the local union presidents. Under the
threat of a major strike, which LTV Steel estimated
would have cost the company $100 million per month,
the parties resumed bargaining on May 26. On June 25
the local presidents approved an agreement (the “1987
CBA”) which replaced most of the lost (i.e., nonguaran-
teed) benefits to retirees and created new benefit pro-
grams for active workers.
The 1987 CBA is an interim agreement that governs
the relationship between LTV Steel and the USWA until
confirmation of a plan of reorganization. The 1987 CBA
provides that if “any of its provisions become unenforce-
able” or if PBGC pension payments for guaranteed bene-
fits are not realized on a continuing basis, the 1987 CBA
may be terminated, upon notice, by either party and
the 1986 CBA will then “snap back” and be in full retro-
active and prospective force. It also provides that pay-
ments thereunder will offset any equivalent bankruptcy
claims against LTV Steel, and will be offset by any
equivalent benefit paid by any trust established pursuant
to section 4049 of ERISA, 29 U.S.C. § 1349. Further,
45a
the 1987 CBA specifically provides that it settles the
USWA’s suit for retirement benefits.
The 1987 CBA has several major components which
together revise certain terms and conditions of employ-
ment for LTV Steel’s union workers. LTV asserts that
three of these components—cost sharing health and life
insurance programs, maintenance craft efficiencies, and
job elimination—will ultimately generate annual savings
to LTV Steel of $50 million. LTV Steel, however, an-
ticipates paying an estimated $70-$75 million annually
to fund six other components, which comprise the new
retirement programs. These new benefit programs are:
the Individual Account Trust (“USWA IAT”); the LTV
Steel/USWA Pension Plan (“USWA Pension Plan“);
the Lump Sum Severance Program; the Pre-Retirement
Surviving Spouse Benefit; the Disability Income Benefit
Plan; and an Extended Supplemental Unemployment
Benefit Plan (“Extended SUB Plan”) (collectively, the
“1987 CBA Plans“).
Court Approval of the 1987 CBA
On July 8, 1987, LTV Steel applied to the bankruptcy
court for approval of the 1987 CBA. LTV’s Senior Vice
President and Chief Financial Officer, and LTV Steel’s
Vice President of Industrial Relations, testified that the
interim agreement was necessary to avoid a crippling
strike and to permit LTV and LTV Steel to reorganize.
In opposition, the Executive Director of the PBGC testi-
fied that portions of the new pension programs violated
a PBGC policy against post-termination benefit arrange-
ments that constitute, in its view, a de facto continua-
tion of previously terminated pension plans. Over the
PBGC’s objections, the bankruptcy court approved the
agreement, exercising its equitable powers under 28
U.S.C. § 157(b) and section 105 of the Code, 11 U.S.C.
§ 105, to ensure the success of reorganization, stating:
46a
Based upon the complete record before me today,
ineluding all filed papers, it has become abundantly
clear that this Court may and should utilize its
equitable power to authorize the terms and payments
contemplated by the agreements as they are clearly
necessary and appropriate to the goal of rehabilita-
tion for this Chapter 11 Debtor.
PBGC Record, p. 622. The bankruptcy court found that
the PBGC’s claims of ERISA “abuse” or “illegality,”
which did not address the authority of the bankruptcy
court to authorize interim payments, were premature.
By orders dated July 30, 1987, the bankruptcy court
granted LTV Steel's application in all respects.’
Both before and after the bankruptcy court’s ruling,
the PBGC attempted to stay implementation of the 1987
CBA. The bankruptcy court, this court, and our Court
of Appeals, denied the PBGC’s applications. Finally, the
PBGC appealed the bankruptcy court order approving
the interim agreement to this court. LTV Steel moved
to dismiss the appeal on the grounds that the July 30
order was only an interim order governing the conduct
of the parties during reorganization. In response, the
PBGC withdrew its appeal, without prejudice to renewal.
10 In its application, LTV also asked the bankruptcy court for
authority to establish similar pension arrangements for non-union
salaried employees and retirees in the J & L Salaried Plan, in an
Individual Account Trust (“Salaried IAT”). At the same time, but
by separate application, LTV asked the bankruptcy court for au-
thority for LTV Steel to make pre-petition stock contributions to
the 1986 EIP, the profit sharing and employee stock ownership
program covering approximately 27,621 LTV Steel employees that
had been established in the 1986 CBA. The USWA had insisted
that implementation of the 1986 EIP, which was designed to com-
pensate employees for their economic concessions under the 1986
CBA, was an absolute prerequisite for any USWA concessions for
the 1987 CBA.
47a
The Restoration of the Plans
In August 1987, the PBGC’s SEPPAA Trusteeship
Working Group (the “SEPPAA Working Group” or
“Group”), an administrative group established to pro-
vide advice to the agency regarding plan terminations
and related matters under Title IV, met to consider
restoring the Plans. The Group reviewed the status of
LTV Steel’s ongoing reorganization, including the estab-
lishment of the 1987 CBA pension programs and what
it perceived to be LTV Steel’s improved financial cir-
cumstances. After discussing the purposes of Title IV
and the PBGC’s duties and obligations thereunder, the
Group concluded that the 1987 CBA plans abused the
termination insurance program by providing, together
with the PBGC’s payment of guaranteed benefits, sub-
stantially the same benefits as were provided under the
terminated Plans. Moreover, in addition to noting sig-
nificant improvement in LTV Steel’s financial situation,
the Group noted LTV Steel’s agreement to contribute
an estimated $90 million to fund benefits pursuant to
the 1987 CBA plans and io contribute an additional $90
million in value to the 1986 EIP. The Group also con-
sidered actuarial estimates of the minimum funding costs
if the Plans were restored.
In addition, the Group considered a financial analysis
(“PBGC Summary Financial Analysis”) of LTV based
on information provided to the Official Committee of
Unseeured Creditors which, the Group concluded, indi-
cated that LTV Steel alone would be able to fund the
restored Plans in the near future, although the PBGC
did not have sufficient data to predict LTV Steel’s long-
term cash flow with any certainty. In addition, the
PBGC Summary Financial Analysis suggested that LTV
and the members of its controlled group would generate
more than enough cash in the immediate future to sup-
port the Plans if restored,
48a
Based on its analysis of LTV’s financial condition and
on the assumption that LTV Steel would obtain funding
waivers from the IRS for the 1984-86 plan years, the
Group estimated the total annual funding costs for the
Plans upon restoration to be $260 million. The Group
then deducted an estimated $90 million in annual funding
costs for the 1987 CBA Plans to arrive at an incremental
cost of full restoration of $170 million. Based on a fur-
ther assumption that annual savings of $50 million from
negotiated job reductions and other USWA concessions
would be realized whether or not the Plans were restored,
the Group calculated the net effect of restoration after
the job reductions to be somewhat less than $120 million.
Against this estimate of the cost of restoration, the
Group weighed LTV Steel’s consolidated financial results
as forecast in the LTV Corporation and Subsidiaries
87-88 Operating Plan (the “1987-1988 Operating Plan“).
The 1987-1988 Operating Plan estimated net income from
LTV Steel of $239 million in 1987 and $260 million in
1988; net cash flow from LTV Steel of $270 million and
$265 million, respectively, in those years; and $267.9
million annual operating income from LTV Steel in 1987.
The Group also considered LTV Steel’s actual operating
income for the period from January through May 1987
which exceeded the Operating Plan’s estimates by $44.9
million. :
Having considered this information, the Group decided
that restoration was necessary to prevent abuse of the
pension termination insurance program. The Group ac-
cordingly voted unanimously to recommend restoration
based on the establishment of abusive follow-on plans,
the improvement in LTV Steel’s financial condition, and
LTV Steel’s demonstrated willingness to fund employee
retirement plans.
The SEPPAA Working Group’s recommendation was
forwarded to the Executive Director of the PBGC for
49a
approval. Before acting on the recommendation, the
Executive Director asked for general policy guidance on
restoration from the PBGC’s Board of Directors, which
consists of the Secretary of the Treasury, the Secretary
of Commerce, and the Secretary of Labor, who is the
Chairman of the Board. See 29 U.S.C. § 1302 (d). After
meeting briefly to consider the matter by telephone con-
ference call on September 18, 1987, the Board unani-
mously adopted a resolution that “confirms, as a matter
of policy, that the PBGC may exercise its discretion un-
der Section 4047 of ERISA to restore plans as appro-
priate,” and “affirms the authority of the Executive
Director of the PBGC to determine when particular pen-
sion plans should be restored and to take all appropriate
actions necessary to effect those determinations.” PBGC
Record, p. 1583.
Before the SEPPAA Working Group first met to con-
sider restoration of the Plans, the PBGC had had several
meetings and had exchanged letters with representatives
of LTV and the USWA in May and July 1987 as the
parties attempted unsuccessfully to resolve the PBGC’s
objections to the 1987 CBA Plans. In early September
1987, LTV’s Chief Executive Officer called the PBGC’s
Principal Deputy Executive Director to ask whether it
was true that the PBGC had decided to restore the
Plans. Upon being informed that the agency had not
reached a final decision on what action it would take in
response to the 1987 CBA Plans, but that restoration was
still being considered as an option, LTV requested an
additional meeting with the PBGC. The PBGC’s Execu-
tive Director responded by letter that the agency “would,
of course, be happy to consider any additional informa-
tion you might wish to supply.” PBGC Record, p. 1572.
As a result, representatives from LTV and the PBGC
met in Washington on September 12 and 21, 1987. In
response to the PBGC General Counsel’s inquiry as to the
effects on interested parties of restoration, LTV’s outside
50a
counsel stated that the economic effect of restoration was
unclear and that restoration would give rise to time-
consuming litigation, cast doubt on the reorganization,
and be hard on other creditors.
The Notice of Restoration
On September 22, 1987, the Executive Director adopted
the recommendation of the SEPPAA Working Group to
restore the Plans and executed and sent the Restoration
Notice to LTV and LTV Steel restoring the Plans, effec-
tive immediately, to their pretermination status as of
January 13, 1987. The Restoration Notice explained that
the PBGC had determined that restoration was appro-
priate and consistent with its duties under Title IV of
ERISA because, among other things: (1) LTV Steel had
abused the pension plan termination insurance program
by establishing follow-on plans that essentially continued
the termination Plans, with the PBGC picking up much
of the cost; (2) the financial condition of LTV Steel had
substantially improved since the Plans were terminated;
and (3) LTV Steel had demonstrated its willingness to
fund retirement programs.
The Restoration Notice informed LTV and LTV Steel
that restoration “means that the Plans are ongoing since
[January 13, 1987] for all purposes, including...
minimum funding obligations” and that “|bJenefit pay-
ments to retirees that were reduced because of the ter-
mination shall be restored to their full amounts under
the terms of the Plans, and the Plans shall pay to such
retirees any amounts that were not paid because of the
terminations, together with interest. PBGC Rec-
ord, p. 1578. The Restoration Notice also informed LTV
that, as plan administrator of the restored Plans, it must
comply with all of the fiduciary duties of a plan admin-
istrator under ERISA and under the terms of the Pians.
51a
PRIOR PROCEEDINGS IN THIS COURT
Asserting that restoration of the Plans violated the
automatic stay under section 362 of the Code, LTV ob-
tained, on September 23, 1987, an order to show cause
from the bankruptcy court seeking, inter alia, a finding
that the restoration violated the automatic stay and was,
therefore, null and void (the “Stay Application”). On
September 24, 1987, the PBGC moved for the withdrawal
of the reference of the Stay Application under 28 U.S.C.
§ 157(d). On November 24, 1987, this court granted the
PBGC’s motion to withdraw the reference, finding that
“the presence of significant issues of first impression,
considerations of judicial economy, and the need to pro-
tect participants in the restored Plans from unduly pro-
tracted uncertainty about the status of their benefits”
established sufficient cause for withdrawal. PBGC v. The
LTV Corp., No. 87 Civ. 6863, slip on. at 13-14 (S.D.N.Y.
Nov. 24, 1987).
On September 28, 1987, LTV applied to the bankruptcy
court for appointment as administrator ad litem of the
Plans and for the appointment of Mellon Bank as trustee
ad litem of the Plans. On September 28, the bankruptcy
court entered consent orders appointing LTV administra-
tor ad litem and Mellon Bank trustee ad litem of the
Plans. The PBGC consented to the orders, but reserved
its position that entry of such orders was neither neces-
sary nor within the jurisdiction of the bankruptcy court.
The orders provide that they are without prejudice to
the PBGC’s right to seek to vacate or modify the orders.
The orders authorize payment of benefits from the assets
of the Plans at least at the level guaranteed by the
PBGC and expressly do not prejudice the positions of any
interested party as to the appropriate level of benefits
payable from the Plans.
As a result of LTV’s refusal to comply with the resto-
ration, evidenced, inter alia, by LTV’s application for
ad litem appointments and failure to pay benefits at full
Plan levels, the PBGC filed a complaint in this court on
52a
October 9, 1987, to require LTV to operate the Plans as
ongoing plans in compliance with the restoration (the
“Enforcement Action”). This court, which had before
it the PBGC’s motion to withdraw the Stay Application,
accepted the Enforcement Action as a related matter.
On November 3, 1987, LTV supplemented the Stay Ap-
plication to assert that, like the restoration, PBGC’s En-
forcement Action also violated the automatic stay.
On December 31, 1987, LTV filed an answer and
counterclaim in the Enforcement Action. By that same
date, various creditor groups affected by LTV’s Chapter
11 petition had been permitted to intervene by stipula-
tion: the Official Committee of Unsecured Creditors of
LTV Corporation et al. (the Committee“), the Commit-
tee’s Subcommittee of Parent Creditors, and the LTV
Bank Group. Later, on January 11, 1988, the Committee
of Equity Security Holders intervened by stipulation.
On January 15, 1988, the Motion to Intervene of
BancTexas Dallas was granted. On January 21, 1988,
a stipulation was filed in which LTV and the PBGC
agreed to the intervention of the Fifth Third Bank,
the Huntington National Bank, and Citibank. Finally,
on January 26, 1988, the motion to intervene filed by two
individual participants in the J & L Salaried Plan, David
H. Miller and William W. Shaffer, was granted. Oral
argument on Miller and Shaffer’s motion for class cer-
tification was held on June 6, 1988.
Following limited discovery, the submission of briefs
from the PBGC, LTV and the intervenors and other in-
terested parties, oral argument was held on March 4,
1988 on the PBGC’s motion for summary judgment in
its Enforcement Action and LTV’s Stay Application.
11 The USWA filed a memorandum of law as amicus curiae in
which the union argues that the 1987 CBA Plans are legal in all
respects and cannot constitute a basis for restoration. In addition,
Solidarity USA, Inc., a nonprofit corporation organized under the
laws of Ohio and representing certain retirees who were hourly
employees of LTV Steel, has filed a memorandum of law as amicus
curiae in support of the PBGC’s motion for summary judgment.
53a
THE STAY APPLICATION
I. The Automatic Stay
LTV contends that the Restoration Notice and the
Enforcement Action violate the automatic stay in sec-
tions 362 (a) (1), a(3), and a(6) of the Code. Section
362 (a) of the Code provides that, unless the Code ex-
pressly provides otherwise, the filing of a petition for
reorganization operates as a stay, applicable to all entities
of :
(1) the commencement or continuation, including
the issuance or employment of process, of a judicial,
administrative, or other action or proceeding against
the debtor that was or could have been commenced
before the commencement of the case under this title,
or to recover a claim against the debtor that arose
before the commencement of the case under this title;
(3) any act to obtain possession of property of
the estate or of property from the estate, or to exer-
cise control over property of the estate;
(6) any act to collect, assess, or recover a claim
against the debtor that arose before the commence-
ment of a case under this title.
11 U.S.C. § 362 (a). Section 362 is intended to provide
a breathing spell for the debtor and to guarantee equal
treatment for creditors. See, e.g., H.R. Rep. No. 595,
95th Cong., 2d Sess. 340 (1978), reprinted in 1978 U.S.
Code Cong. & Ad. News 5963, 6296-97; Fidelity Mortgage
Investors v. Camelia Builders, Inc., 550 F.2d 47, 55 (2d
Cir. 1976), cert. denied, 429 U.S. 1093, reh’g denied,
430 U.S. 976 (1977).
The legislative history of section 362 reveals clear con-
gressional intent that the automatic stay be brvadly en-
forced so as to preserve the status quo as of the petition
54a
date, insure the orderly administration of a bankruptcy
estate and prevent a race among creditors:
The automatic stay is one of the fundamental
debtor protections provided by the bankruptcy laws.
It gives the debtor a breathing spell from his credi-
tors. It stops all collection efforts, all harassment,
and al! foreclosure actions. It permits the debtor to
attempt a repayment or reorganization plan, or sim-
ply to be relieved of the financial pressures that
drove him into bankruptcy.
The automatic stay also provides creditor protec-
tion. Without it, certain creditors would be able to
pursue their own remedies against the debtor’s prop-
erty. Those who acted first would obtain payment
of the claims in preference to and to the detriment
of other creditors. . . .
Subsection (a) defines the scope of the automatic
stay, by listing the acts that are stayed by the com-
mencement of the case. The commencement or con-
tinuation, including the issuance of process, of a
judicial, administrative, or other proceeding against
the debtor that was or could have been commenced
before the commencement of the bankruptcy case is
stayed under paragraph (1). The scope of this para-
graph is broad. All proceedings are stayed, including
arbitration, license revocation, administrative, and
judicial proceedings. . . even if they are not before
governmental tribunals.
Paragraph (3) stays any act to obtain possession
of property of the estate (that is, property of the
debtor as of the date of the filing of the petition)
or property from the estate (property over which
the estate has control or possession). The purpose
of this provision is to prevent dismemberment of the
estate
55a
Paragraph (6) prevents ereditors from attempting
in any way to collect a prepetition debt.
H.R. Rep. No. 595, 95th Cong., 2d Sess. 340-42 reprinted
in 1978 U.S. Code Cong. & Ad. News 5963, 6296-98;
see also S. Rep. No. 989, 95th Cong., 2d Sess. 49-51,
reprinted in 1978 U.S. Code Cong. & Ad. News 5787,
5835-36.
LTV contends that, by restoring the Plans, the PBGC
seeks to impose additional liabilities upon LTV so that
a greater portion of LTV’s assets will be paid to the
PBGC and to satisfy its multibillion dollar claim against
LTV Steel ahead of other creditors. Upholding the
PBGC’s actions, LTV argues, would frustrate the two
major purposes of the Code: “achieving equality among
creditors and giving the debtor a fresh start.” In re
B. D. Int'l Discount Corp., 701 F.2d 1071, 1075 n.8 (2d
Cir.), cert. denied, 464 U.S. 830 (1983).
The PBGC contends that neither restoration nor the
Enforcement Action “was or could have been commenced
before the commencement of the case under [Chapter
11).” 11 U.S.C. § 362 (a) (1). The PBGC argues that
under Title IV of ERISA, the PBGC’s claims against
LTV Steel first arose post-petition and that, in any event,
neither restoration nor the Enforcement Action is an act
to recover such claims. See 11 U.S.C. § 362 (a) (1),
(a) (6). In addition, the PBGC contends that because
restoration does not directly affect the assets or property
of LTV Steel, neither restoration nor the Enforcement
Action constitutes an act “to obtain property of.. or
to exercise control over property of the estate.” 11 U.S.C.
362 (a) (3). Finally, the PBGC asserts that both resto-
ration and the Enforcement Action are excepted from
the stay by section 362 (b) (4) of the Code because they
are regulatory enforcement actions taken to further the
important public policies underlying ERISA.
56a
Il. The Nature of the PBGC’s Claims
Section 104(4) of the Code defines “claim” to mean:
(A) right to payment, whether or not such right
is reduced to judgment, liquidated, unliquidated,
fixed, contingent, matured, unmatured, disputed, un-
disputed, legal, equitable, secured, or unsecured; or
(B) right to an equitable remedy for breach of
performance if such breach gives rise to a right to
payment, whether or not such right to an equitable
remedy is reduced to judgment, fixed, contingent,
matured, unmatured, disputed, undisputed, secured,
or unsecured.
11 U.S.C. §101(4) (emphasis added). The legislative
history of 11 U.S.C. § 101 (4) reveals that Congress in-
tended to define prepetition claims broadly:
The definition is any right to payment, whether or
not reduced to judgment, liquidated, unliquidated,
fixed, contingent, matured, unmatured, disputed, un-
disputed, legal, equitable, secured, or unsecured. . . .
By this broadest possible definition and by the use
of the term throughout the title 11, especially in sub-
chapter I of chapter 5, the bill contemplates that all
legal obligations of the debtor, no matter how remote
or contingent, will be able to be dealt with in the
bankruptcy case. It permits the broadest possible
relief in the bankruptcy court.
H.R. Rep. No. 595, 95th Cong., 2d Sess. 309, reprinted in
1978 U.S. Code Cong. & Ad. News 5963, 6266; see 918
S. Rep. No. 989, 95th Cong., 2d Sess. 21-22, reprinted in
1978 U.S. Code Cong. & Ad. News 5787, 5807-08. The
broad definition of “claim” is central to the policy of
a “fresh start” for a debtor and permits a debtor to
receive “the broadest possible relief in the bankruptcy
court,” because liability on a “claim” can be discharged
only by the confirmation of a plan of reorganization.
57a
Id.; see 11 U.S.C. 88 101(11), 1141(d); see also In re
A.H. Robins Co., 63 B.R. 986, 989 (Bankr. E.D. Va.
1986), aff'd sub nom. Grady v. A. H. Robins Co., 839
F.2d 198 (4th Cir. 1988).
The PBGC has two major types of claims against LTV.
As the agency responsible for administering and enforc-
ing Title IV, the PBGC has a claim under section 4062
(b) of ERISA, 29 U.S.C. § 1362 (b), for statutory “ter-
mination liability” in the amount by which Plan assets
were insufficient to satisfy guaranteed benefits on the
date of plan termination. In addition, the PBGC has
a second statutory claim under section 4062(d) of
ERISA, 29 U.S.C. § 1362 (d), asserted in its capacity as
statutory trustee on behalf of the Plans, for due and
unpaid minimum funding contributions. See also 29
U.S.C. § 1082; 26 U.S.C. § 412. The PBGC contends that
under ERISA these claims first arose upon the post-
petition termination of the Plans.
Section 4062(a) provides that any contributing spon-
sor of a plan, or a member of such sponsor’s controlled
group, shall incur termination liability “in any case in
which a single-employer plan is terminated.” 29 U.S.C.
1362 (a). Such liability “shall be due and payable to
the [PBGC] as of the termination date.” 29 U.S. C.
§ 1362(a), (b) (2) (A). Section 4068 of ERISA, which
120n November 30, 1987, the PBGC filed these claims, which
were non-contingent during the period between the termination of
the Plans on January 13, 1987, and the restoration on September
22, 1987, as contingent claims in the bankruptcy case based on the
contingency that restoration is held to be ineffective or that a sub-
sequent valid termination of the Plans occurs before the confirma-
tion of a plan or plans ef reorganization. The PBGC also filed other
contingent claims in the bankruptcy case, including contract claims
asserted on behalf of the Plans as third-party beneficiaries for the
amounts by which Plan assets may be insufficient to pay promised
benefits, and claims under section 4062(c) of ERISA, 29 U.S.C.
§ 1362(c), for certain unfunded “benefit commitments” owed to the
trust established under section 4049 of ERISA, 29 U.S.C. § 1349.
58a
imposes a lien for unpaid termination liability, provides
that the lien “arises on the date of termination of a
plan.” 29 U.S.C. § 1368 (b). Under section 4048 of
ERISA, the date of plan termination is the “date estab-
lished by the corporation and agreed to by the plan
administrator” or the “date established by the court.”
29 U.S.C. § 1348 (a) (3), (a) (4). Here, since the ter-
mination date was January 13, 1987, the PBGC argues
that its claim for termination liability first arose six
months after the commencement of LTV’s bankruptcy
proceedings. As for its claim as statutory trustee for
due and unpaid contributions to the Plans, the PBGC
contends that under section 4062(d) of ERISA it had
no statutory responsibility or authority to collect due and
unpaid contributions until it was appointed statutory
trustee on January 12, 1987, the date on which the con-
sent orders terminating the Plans as of January 13, 1987
were entered. 29 U.S.C. § 1362 (d).
LTV does not dispute that LTV Steel’s liability to the
PBGC did not become due and payable under ERISA
until the date of termination. LTV contends, however,
that the accrued benefits, for which the PBGC has now—
through restoration—reimposed LTV Steel's funding
obligations, were accrued or earned by LTV Steel’s em-
ployees prepetition and thus are attributable to the pe-
riod pre-dating the Chapter 11 filing. Therefore, LTV
argues, the liability to fund such benefits constitutes a
prepetition claim and remains a prepetition claim regard-
less of when it becomes fixed. Recent bankruptcy cases
that distinguish between when a claim arises for the pur-
poses of the Code and when a cause of action accrues on
a claim under state or federal law support LTV’s
position.
Consistent with the goals of uniform treatment for
creditors and a fresh start for debtors, courts have deter-
mined when a claim arises for Code purposes by focusing
upon “the time when the acts giving rise to the alleged
59a
liability were performed,” since only reference to pre-
petition acts of the debtor will result in treating liabili-
ties flowing from such acts in an equitable fashion.
In re Johns-Manville Corp., 57 B.R. 680, 690 (Bankr.
S.D.N.Y. 1986); see also In re Revere Copper and Brass,
Inc., 29 B. R. 584, 588 (Bankr. S. D. N. V.), aff'd, 32 B. R.
725 (S. D. N. V. 1983); In re A. H. Robins Co., 63 B. R. at
993; In re Edge, 60 B. R. 690, 699-705 (Bankr. M. D.
Tenn. 1986). Where the debtor's obligations stem from
contractual liability, even a post- petition breach will be
treated as giving rise to a prepetition liability where the
contract was executed prepetition. See 11 U.S.C. 8 365
(g)(1); NLRB v. Bildisco & Bildisco, 465 U.S. 513
(1984); see also In re Ahrens, 64 B.R. 5, 6-7 (Bankr.
E.D. Pa. 1986); In re William H. Herr, Inc., 61 B.R.
252, 253 (Bankr. E.D. Pa. 1986).
In In re Johns-Manville, 57 B.R. at 690, the bank-
ruptey court held that “for federal bankruptcy purposes,
a prepetition ‘claim’ may well encompass a cause of
action that, under state law, was not cognizable until
after the bankruptcy petition was filed.” The court de-
clined to follow the Third Circuit’s holding in Matter of
M. Frenville Co., 744 F.2d 332 (8d Cir. 1984), cert.
denied, 469 U.S. 1160 (1985) that “the threshold ques-
tion of when a right to payment arises, absent overrid-
ing federal law, ‘is to be determined by reference to
state law.’” 744 F.2d at 337 (quoting Vanston Bond-
holders Protective Committee v. Green, 329 U.S. 156, 161
(1946)). The Johns-Manville Court noted other bank-
ruptcy courts’ criticism of the Frenville decision for its
“reliance upon state law to determine if a claim existed
against the debtors at the time that the bankruptcy cases
were commenced,” Jn re Yanks, 49 B.R. 56, 58 (Bankr.
S. D. Fla. 1985), and for failing “to distinguish between
‘claim’ as defined in 11 U.S.C. § 101 (4) and a cause of
action for indemnity or contribution under state law.”
Matter of Baldwin-United Corp., 49 B.R. 901, 903
*
60a
(Bankr. S. D. Ohio 1985). The bankruptcy court also
noted the Second Circuit’s statement in In re Baldwin-
United Corp. Litig., 765 F.2d 343 (2d Cir. 1985), that
it has reservations about following Frenville: “We are
not as certain as the District Court that, if we reached
the issue, we would follow Frenville and hold the stay
inapplicable to Paine-Webber’s third-party complaint.
The broad definition of ‘claim’ in the Bankruptcy Code
. . . creates a substantial question whether the stay ap-
plies to the third-party complaint.” Jn re Baldwin-United
Corp. Litig., 765 F.2d at 348 n.4.
Notwithstanding widespread bankruptcy court disap-
proval of Frenville, this and other district courts from
this Circuit have held that the issue of when a claim
arises cannot always be resolved solely with reference
to the Code but sometimes requires an analysis of com-
peting interests behind other federal laws. Thus, for
example, in three recent cases our district courts have
held that when the EPA’s claim for cost recovery and a
joint tortfeasor’s claim for contribution under the Com-
prehensive Environmental Response, Compensation and
Liability Act of 1980 arise against a debtor in bank-
ruptcy cannot be determined solely with reference to the
broad definition of claim in section 101(4) of the Code
but requires substantial consideration of the competing
interests protected by federal environmental laws. See,
e.g., American Telephone & Telegraph Co. v. Chateaugay
Corp., No. 87 Civ. 8160, slip op. (S.D.N.Y. April 22,
1988); In re Combustion Equipment Assocs., Inc., 67
B.R. 709 (S.D.N.Y. 1986); In re Johns-Manville Corp.,
63 B.R. 600 (S.D.N.Y. 1986). Indeed, the need for
material consideration of ERISA provided part of the
grounds for the withdrawal of the instant case from the
bankruptcy court. See PBGC v. The LTV Corp., slip op.
at 11-12 (material consideration of ERISA required to
determine when PBGC’s claims arise). Therefore, in
order to determine the status of the PBGC’s claims, this
court must consider what acts gave rise to LTV’s pen-
6la
sion liabilities, when they occurred, and, finally, whether
any competing interests in ERISA require that such lia-
bilities be treated as post-petition claims of the PBGC.
Here, the events that gave rise to the PBGC’s claims
and that mark them as prepetition were LTV Steel’s
creation and maintenance of a pension plan that was
subject to ERISA’s Title IV termination liability pro-
visions and LTV Steel's employees’ labor during the
years preceding the Chapter 11 filing. The PBGC’s right
to payment upon termination was, on the petition date, a
classic example of a contingent claim“ one which the
debtor will be called upon to pay only upon the occurrence
or happening of an extrinsic event.” In re All Media
Properties, Inc., 5 B. R. 126, 133 (Bankr. S.D. Tex.
1980), aff'd, 646 F.2d 193 (5th Cir. 1981). If the ex-
trinsic event occurs post-petition, the contingent claim
simply becomes a liquidated one; it, however, is not
thereby elevated to the status of a post-petition claim.
Here, the extrinsic event was plan termination, which
simply fixed LTV’s liability to PBGC.”
13 Indeed, the PBGC’s reimbursement claim in these cases as stat-
utory guarantor is analogous to the claim of any guarantor or
surety that pays post-petition under a guarantee that existed
prepetition. As one commentator notes:
To the extent that the claim of a surety for reimbursement or
contribution of payments made after the filing of the case is
.. . allowable, such claim is treated as though it were given no
higher status than is the claim of the creditor against the
debtor. To give the surety better than prepetition status
merely because he has made a payment to a prepetition credi-
tor following the filing of the debtor’s petition would distort
the scheme of the statute with respect to prepetition claims
and, when appropriate, post-petition administrative claims. The
surety had a contingent claim against the debtor at the time of
the commencement of the case. Its becoming fixed after that
time in no way changes its status as a prepetition claim.
3 Collier on Bankruptcy, § 502.05[2] (15th ed. 1987); see also
Maynard v. Elliott, 283 U.S. 273, 275 (1931); Matter of Fuzzy
Thurston's Eau Claire Left Guard, Inc., 33 B. R. 579, 581 (Bankr.
W.D. Wisc. 1983); 11 U.S.C. 5 502 (e).
62a
The Code’s deliberate refusal to distinguish between
contingent and mature claims reflects a fundamental
bankruptcy policy that “all legal obligations of the debtor,
no matter how remote or contingent, will be able to be
dealt with in the bankruptcy case.” H.R. Rep. No. 595,
95th Cong. 2nd Sess. 309 (1978), reprinted in 1978 U.S.
Code Cong. & Ad. News 5963, 6266; S. Rep. No. 989,
95th Cong., 2d Sess. 22, reprinted in 1978 U.S. Code
Cong. & Ad. News 5787, 5808. The Code’s broad de-
lineation of prepetition claims was intended to embrace
contingent claims and avoid the problems that some-
times occurred under the former Bankruptcy Act, when
contingent or unliquidated claims were disqualified from
sharing in the estate and, equally important from the
debtor’s point of view, were not discharged. See In re
Johns-Manville, 57 B.R. at 687.
In support of its argument for post-petition status for
its claims, the PBGC cites statutory provisions in ERISA
that make the PBGC’s claims for termination liability
and for due and unpaid minimum funding contributions
“due and payable” as of the termination date. See 29
U.S.C. § 1362 (b) (2 (A), (d). Relying on these pro-
visions, the PBGC argues that its claims against LTV
are based upon a post-petition event—termination—and,
therefore, arose post-petition. Termination, however,
merely made the PBGC’s contingent claims fixed, that is,
non-contingent. The fact that the PBGC may not pro-
ceed against LTV Steel on its contingent claims until
termination occurs does not distinguish pension liability
claims from any other contingent claims that are trig-
gered by a post-petition event. Termination alone could
not convert the PBGC’s contingent prepetition claims into
post-petition claims."
14 The cases cited by the PBGC in support of its contention that
its claims against LTV arose post-petition are distinguishable. In
each case, to the extent that a claim was found to have arisen post-
petition, the court found that the claim arose upon the post-petition
63a
The PBGC has failed to raise any overriding policy
objectives of ERISA that would warrant a departure
from the well-settled bankruptcy rule that contingent,
unmatured claims be deemed prepetition claims subject
to the automatic stay and dischargeable pursuant to a
plan of reorganization. The PBGC has not cited to legis-
lative history or provisions of ERISA that suggest that
a debtor’s minimum funding obligations and termination
liability are entitled to post-petition status in the con-
text of a bankruptcy proceeding. Indeed, the 1987 PPA
amendments to ERISA, which increased the PBGC’s
claim for termination liability from 75 to 100% of all
unfunded benefits, indicate that Congress chose to im-
prove the PBGC’s claim by increasing it, without award-
ing it post-petition treatment in bankruptcy. The court
is not aware of any proposals during consideration of
the 1987 amendments that would have afforded post-
treatment to the PBGC’s claims.
Finally, LTV Steel’s liabilities, and the PBGC’s claims,
are analogous to ERISA claims for “withdrawal liability”
conduct of the debtor, not the creditor. See, e. g., Holland America
Ins. Co. v. Succession of Roy, 777 F.2d 992 (5th Cir. 1985) (claims
with respect to a fire at the debtor’s property two days after Chap-
ter 11 petition was filed held to be post-petition) ; Jn re Continental
Air Lines, Inc., 61 B.R. 758 (S.D. Tex. 1986) (action brought by
minority shareholders of corporation which was target of debtor’s
post-petition takeover attempt was found to be post-petition ac-
tion); Jn re Newman Companies of Wisconsin, Inc., 45 B.R. 308
(Bankr. E.D. Wis. 1985) (declaratory judgment action by former
employee of debtor to test validity of a noncompetition clause with
respect to debtor’s post-petition business activities was allowed
under 28 U.S.C. 8 959 (a) which permits suit against debtor with
respect to post-petition business activities); Turner Broadcasting
System, Inc. v. Sanyo Elec., Inc., 33 B.R. 996 (N. D. Ga. 1983), aff’d
mem. sub nom. Turner Broadcasting v. Rubin, 742 F.2d 1465 (11th
Cir. 1984) (debtor’s breach of post-petition contract resulted in
post-petition claim.) Here, as discussed above, the service of LTV
Steel’s employees during the years preceding the Chapter 11 filing
gave rise to LTV Steel’s pension liabilities, and hence to the
PBGC’s claims.
64a
owed to multiemployer plans.“ Courts considering the
status of such claims uniformly have held that with-
drawal liability is based on vested benefits relating to
prepetition services and that claims for withdrawal lia-
bility are prepetition claims. See Trustees of the Amal-
gamated Ins. Fund v. McFarlin’s, Inc., 789 F.2d 98 (2d
Cir. 1986); In re Great Northeastern Lumber & Mill-
work Corp., 64 B.R. 426 (Bankr. E.D. Pa. 1986) ; Amal-
gamated Ins. Fund v. William B. Kessler, Inc., 55 B.R.
735 (S.D.N.Y. 1985); In re Silver Wheel Freightlines,
Inc., 57 B.R. 476 (Bankr. D. Or. 1985). In MeFarlin's,
the Court of Appeals for this Circuit reasoned that the
liability to a pension plan to fund plan benefits that
were earned through prepetition services is not a post-
petition expense of administration, even though the lia-
bility matured post-petition upon plan withdrawal. Since
the “consideration supporting [the] . . . liability” was the
employees’ prepetition labor, the consideration was at-
tributable to the period pre-dating the filing of the Chap-
ter 11 petition” and the liability was classified as a
general unsecured claim. Id. at 103. The Honorable
Walter R. Mansfield, rejecting an argument similar to
that made by the PBGC here, stated that a “debt is not
entitled to priority [i.e., post-petition administrative
status] simply because the right to payment arises“ post-
petition. Id. at 101. Rather, an obligation, he said, is
entitled to administrative post-petition status “only to
the extent that the consideration supporting the claim-
ant’s right to payment was both supplied to and bene-
ficial to the debtor-in-possession in the operation of the
business.” Id. (quoting In re Mammoth Mart, Inc., 536
F.2d 950, 954 (Ist Cir. 1976
13 Under sections 4201 and 4211 of ERISA, when an individual
employer withdraws from a multiemployer pension plan, the with-
drawing employer must pay to the plan an amount equal to the
employer's pro rata share of the total unfunded vested benefits plan
as of the date of termination. See 29 U.S.C. §§ 1381, 1391.
|
|
)
65a
In an effort to distinguish the instant case from Me-
Farlin’s and other withdrawal liability cases, the PBGC
suggests that those decisions turned on a finding that
withdrawal liability was not a necessary cost of preserv-
ing the estate and that the denial of administrative pri-
ority does not necessarily mean that the claim arose
prepetition. The rationale of the withdrawal liability
cases, however, is broader than the narrow issues there
decided. As the court stated in Jn re Pulaski Highway
Express, Inc., 57 B.R. 502 (Bankr. M.D. Tenn. 1986),
a prepetition claim for pension liability remains a prepe-
tition claim regardless of when it becomes fixed or ma-
-tured in the context of multiemployer pension plan with-
drawal liability:
Although withdrawal liability may be triggered by
a post-petition event, the conclusion that it then con-
stitutes a “post-petition claim” for bankruptcy pur-
poses is unsupported by applicable law and is in-
consistent with important bankruptcy polices. In
substance, the claim is an obligation to ensure the
payment of pension benefits which have previously
accrued but are not payable until a future date
The liability, i.e., the “right to payment,” is incurred
when the employee benefits become nonforfeitable.
An employer may meet this obligation either by
continuing normal operations and making the re-
quired regular contributions into the plan, or by
withdrawing from the plan and paying the with-
drawal liability. . . . The liability may be unliqui-
dated and the amount may be contingent upon with-
drawal or whether the vested benefits are unfunded,
but such uncertainties do not defeat the existence of
pre-petition claims for benefits which accrued prior
to withdrawal, which stem from pre-petition events
and conduct and which were nonforfeitable and fully
vested prior to filing.
66a
The withdrawal liability attributable to pre-petition
labor is generically indistinguishable from the rights
acquired by any pre-petition creditor who provides
contractual services or goods to the debtor, accrues
a right to payment from the debtor, but is not paid
as of the date of the petition.
In re Pulaski Highway, 57 B.R. at 507-508 (citations
omitted).
The PBGC has not offered a compelling reason why
the post-petition termination of a pension plan should
displace the actual service of employee-beneficiaries as the
“acts” that give rise to a sponsor’s pension liabilities.
Based upon the foregoing consideration of the policies
of the Code and of ERISA, the objectives of the Code
will be furthered and those of ERISA not frustrated if
LTV’s pension liabilities to the PBGC are treated as
prepetition claims.
III. Restoration Does Not Violate the Automatic Stay
The PBGC contends that neither restoration nor the
Enforcement Action are actions to recover on its claims
against LTV Steel. Neither the Restoration Notice nor
the complaint in the Enforcement Action demands pay-
ment on the PBGC’s claims against LTV Steel, and
neither will result in any payments directly to the PBGC.
The PBGC asserts that because the Restoration Notice
restored the Plans to their pretermination status, the
PBGC, post-restoration, is in the same position vis-a-vis
LTV as it was before the Plans terminated on January
13, 1987.
LTV argues that the PBGC’s contentions ignore the
practical effects of its acts. The Restoration Notice in-
structed LTV Steel that the Plans were ongoing “for all
purposes including . . . minimum funding contributions.”
Thus, LTV argues, although restoration will not effect a
direct recovery by the PBGC on its prepetition claims,
67a
restoration will (1) make LTV immediately liable for
due and unpaid minimum funding contributions, (2)
make LTV liable for currently accruing minimum fund-
ing contributions, and (3) result in the ongoing accrual
by LTV Steel employees of pension benefits under the
Plans. Further, LTV contends that, in the event that
the Plans are reterminated at some future date, res-
toration will have served as the predicate for a substan-
tial increase in the PBGC’s termination liability claims
against LTV under the 1987 PPA amendments to ERISA.
Focusing on what may prove to be the practical effects
of the PBGC’s restoration decision in this case, as LTV
urges this court to do, could lead to an erroneous con-
clusion as to whether restoration, when properly effected,
violates the automatic stay as a matter of law. Here,
LTV has argued that the relief sought by the PBGC in
its Enforcement Action—the enforcement of the Restora-
tion Notice compelling minimum funding payments—ex-
ceeds the PBGC’s authority under Title IV. LTV has
also argued that if restoration is upheld, the Plans will
have to be reterminated, at which time the PBGC can
be expected to contend that it is entitled, under the 1987
amendments to ERISA, to increase its termination lia-
bility claim against LTV. However, the fact that the
PBGC may have erred in restoring the Plans or that it
may have requested relief beyond the scope of its author-
ity does not necessarily lead to the acceptance of LTV’s
argument that restoration must always be subsumed by
the Code and subordinated to the goals of reorganization.
These considerations underlie the conclusions concerning
the direct effects of restoration under sections 362(a) (1),
(a) (3), and (a) (6) of the Code.
Sections 362(a)(1) and (a) (6) of the Code’s stay
provisions bar all acts or proceedings to collect, assess
or recover prepetition claims. Restoration returns to
LTV Steel the immediate obligation to contribute to the
Plans the minimum funding amounts required by ERISA
68a
for the plan years 1984-1986 and imposes on LTV a
continuing obligation to make minimum funding con-
tributions for the years 1987 forward. Whether LTV
will be required to make these payments, however, is not
determined by the simple act of restoration. In order to
compel payment for past due minimum funding contribu-
tions, the Department of Labor, not the PBGC, is re-
quired to institute enforcement proceedings under Title
I of ERISA. See 29 U.S.C. 1132 (a). Whether an en-
forcement action by the Labor Department would be
barred by the automatic stay or whether the bankruptcy
court would lift the stay for such an action are issues
not now before this court.“ It suffices to note that res-
toration per se simply reimposes on the debtor the same
minimum funding obligations for the vears 1984-1986
that existed prior to termination and reinstates LTV
1% Restoration in a bankruptcy proceeding does not mean that
minimum funding payments, otherwise payable on account of un-
funded prepetition benefits, must be paid, because the provisions of
Title I of ERISA, which set forth the minimum funding obliga-
tions, see 29 U.S.C. § 1082, are expressly subordinated to other
non-ERISA federal laws, like the Code. Section 514(d) of ERISA,
in relevant part, provides that “[n)othing in this title [Title I)
shall be construed to alter, amend, modify, invalidate, impair, or
supersede any law of the United States or any rule or regula-
tion issued under such law.” This section has been cited for the
proposition that “ERISA should not be interpreted as displacing
any pre-existing federal legislation.” See Bonin v. American Air-
lines, Inc., 621 F.2d 635 (5th Cir. 1980) (Railway Labor Act),
on remand, 562 F. Supp. 896 (N. D. Tex. 1983), aff'd without op.,
738 F.2d 435 (5th Cir. 1984), cert. denied, 471 U.S. 1005 (1985).
On the other hand, the PBGC has offered authority for the
proposition that payments for minimum funding contributions by
a plan sponsor in Chapter 11 may be entitled to administrative
expense priority, pursuant to sections 503(b)(1) and 507 of the
Code, as actual and necessary costs or expenses of preserving the
estate. See Columbia Packing Co. v. PBGC, No. 85-2241-C, slip op.
at 5-9 (D. Mass. Jan. 6, 1988). Because an application for admin-
istrative expense priority status for LTV Steel’s minimum funding
payments is not before this court, whether Columbia Packing should
be followed need not be decided at this time.
69a
Steel’s ongoing minimum funding obligations for plans
that have been restored to their pretermination status.
Restoring the Plans to their pretermination status does
not result in any direct payments to the PBGC or in
any direct payments to the Plans and, therefore, does not
result in a recovery on claims for past due minimum
funding contributions in violation of sections 362(a) (1)
and (a)(6)."" Similarly, because the PBGC lacks the
authority to compel minimum funding payments, its
decision to restore the Plans does not directly result in
the PBGC’s exercise of control over LTV’s assets by the
PBGC in violation of section 362(a) (3).
LTV advances a second theory under which restora-
tion will result in the exercise of control over property
of the estate. If restoration is made effective as of the
January 13, 1987 termination date, LTV Steel’s em-
ployees will continue to accrue service benefits from that
date forward. LTV equates the compulsory accrual of
liabilities under the Plans with the exercise of control
over property of the debtor which is barred by section
362(a)(3). However, the scope of section 362(a) (3)
does not by its terms encompass such indirect effects of
restoration.
The purpose of section 362(a)(3) “is to protect the
estate from direct action taken by creditors against a
debtor’s personal or real property, and to prevent an un-
controlled scramble to liquidate the estate.” In re Con-
tinental Airlines, Inc., 61 B.R. 758, 778 (S.D. Tex. 1986)
(emphasis added). Cases interpreting section 362(a) (3),
therefore, “have generally involved direct action taken by
creditors against a debtor’s personal or real property.”
Id. at 779; see, e.g., In re 48th Street Steakhouse, Inc.,
61 B.R. 182, 187 (Bankr. S. D. N. V. 1986), aff'd, 77 B. R.
17 It must be noted that today’s decision does not resolve whether
an action by the Labor Department to collect due and unpaid mini-
mum funding contributions to the Plans would constitute an action
to recover on the PBGC’s contingent claims against LTV Steel.
70a
409 (S. D. N. V.), aff'd, 835 F.2d 427 (2d Cir. 1987), cert.
denied, —— U.S. ——, 108 S.Ct. 1598 (1988) (cancella-
tion of debtor’s lease) ; Jn re Tel-A-Communications Con-
sultants, Inc., 50 B.R. 250 (Bankr. D. Conn. 1985) (re-
possession of debtor’s vehicle); Proyectos Electronicos,
S.A. v. Alper, 37 B.R. 931, 932 (E. D. Pa. 1983) fre-
covery of purchased goods from debtor’s estate). Courts,
moreover, “have clearly distinguished between the entry
of judgment, and attempts to enforce a judgment against
property of the estate in determining whether a viola-
tion of subsection 362 a (3) has occurred.” Jn re Con-
tinental Airlines, 61 B.R. at 779; see, e. g., Kommandit-
selskab Supertrans v. OCC Shipping, Inc., 79 B.R. 534
(S. D. N. V. 1987) (Section 362(a)(3) stays enforcement
of judgment against debtor’s property).
Restoration does not constitute direct action against
LTV’s property or assets. Restoration simply reimposes
on LTV Steel the obligation to provide pension benefits
for employees. This obligation is an ordinary cost of
doing business and one that LTV Steel has readily ac-
cepted under the 1987 CBA Plans, albeit outside the reg-
ulatory framework of ERISA. However, contrary to
LTV Steel’s assumption, termination did not remove the
company and its Plans from ERISA’s regulatory frame-
work. The PBGC’s authority to restore terminated pen-
sion plans to their pretermination status necessarily im-
plies that termination does not erase a plan sponsor’s
obligations under ERISA but rather suspends certain
obligations and transforms others into liability claims.
For example, although termination relieves the plan
sponsor of its obligation to make minimum funding con-
tributions directly to the Plans, section 4062 of ERISA
recasts the sponsor’s minimum funding obligations as
liabilities directly to the PBGC.
As the bankruptcy court stated in In re Beker Indus.
Corp., 57 B.R. 611, 624 (Bankr. S. D. N. V. 1986), “the
Code does not change the business and regulatory en-
71a
vironment in which a debtor operates.” Although LTV
Steel seeks to minimize the application of ERISA to its
post-petition pension activities, ERISA’s restoration pro-
vision compels the conclusion that an employer who funds
a qualified ongoing pension plan may under appropriate
circumstances be required to resume its statutory obli-
gations for a plan that has been terminated. Therefore,
the continued accrua! of employee pension benefits re-
sults from maintaining a qualified pension plan under
ERISA. The liability that LTV Steel incurs as such
benefits accrue does not transfer or exercise control over
LTV Steel’s property.
LTV’s final attempt to place restoration within the
category of actions barred by the automatic stay is
premised upon the assumption that retermination of the
Plans is inevitable. Because Plan liabilities exceed Plan
assets, if, upon restoration, LTV is not able to make
current minimum funding contributions to the Plans, the
Plans will ultimately be financially exhausted, and the
PBGC will be compelled to terminate them. If the Plans
are not restored, the amount of the PBGC’s termination
liability claim in this case would equal 75% of the un-
funded guaranteed benefits. But if the Plans were re-
stored and then reterminated, the PBGC can be expected
to claim reimbursement for 100% of all unfunded ben-
efits under the 1987 PPA amendments. Thus, LTV
argues, even if the PBGC is now seeking to restore the
Plans for the sole purposes of allowing full retirement
benefits (not just guaranteed benefits) to be paid out of
Plan assets and allowing active workers to continue to
‘fecrue benefits (as was the case immediately prior to
termination), without compelling minimum funding pay-
ments, restoration violates the automatic stay because
its only lasting effect would be to enable the PBGC to
argue upon the inevitable retermination of the Plans
that it is entitled to assess an increase in its claim for
termination liability under ERISA. LTV has estimated,
72a
and the PBGC does not dispute, that the 1987 PPA
amendments to ERISA could increase the PBGC’s claim
for termination liability by approximately $800 million
upon retermination.
Based upon these assumptions concerning retermina-
tion, LTV suggests that restoration should be viewed as
an act by the PBGC to “assess” an increase in its claims
or to “recover” more on its prepetition claims than it
would otherwise be entitled to recover in violation of
sections 326(a)(1) and (a)(6). However, the auto-
matie stay does not apply to speculation about recovery
on an attenuated future liability. First, it remains to
be seen whether restoration can be upheld on any of
the grounds articulated by the PBGC in the Restoration
Notice. Second, if restoration is upheld and retermina-
tion proves to be inevitable, substantial questions will
be raised as to (a) whether the period between the termi-
nation date and the retermination date should be ac-
counted for in assessing LTV’s liabilities to the PBGC
and (b) whether the PBGC will be permitted to invoke
the benefits of the 1987 PPA amendments to enhance its
claims against LTV. Retermination is replete with un-
answered questions concerning the respective rights of
LTV and the PBGC. Therefore, the prospect of future
retermination of the Plans cannot mark restoration as
an act to increase a prepetition claim in violation of
section 362 (a) (6).
18 Thus, this case can be distinguished from Jn re Texaco Inc.,
73 B.R. 960 (Bankr. S.D.N.Y. 1987), where certain noteholders
sought to lift the stay in order to serve a notice of acceleration
upon the debtor, Texaco Capital, Inc., and thus lock into a higher
rate of interest under the terms of their notes. There, because the
notice would satisfy a “condition precedent” for asserting a larger
claim, the court held that it would disrupt the status quo and, thus,
violate the stay by permitting discreet creditors to advance their
interest during the case. Jd. The court, therefore, refused to lift
the stay. In Texaco even though the movants had not sought im-
mediately to collect amounts due on certain notes, there was no
—
i
73a
In sum, section 362(a) prohibits only action taken
“directly against the property of the debtor’s bankrupt
estate.” In re Nashville White Trucks, Inc., 731 F.2d
376, 378 (6th Cir. 1984). The PBGC’s authority under
section 4047 of ERISA is limited to restoring the Plans
to their pretermination status and thereby converting the
PBGC’s claims for minimum funding contributions and
for termination liability back to contingent claims against
LTV Steel and reinstating LTV Steel’s ongoing statu-
tory obligations as a sponsor of qualified plans under
ERISA. Restoration alone cannot result in immediate
involuntary payments from LTV’s assets to meet mini-
mum funding requirements, nor can restoration cause
a direct change in the possession or control of any of
LTV’s assets. Finally, whether restoration will serve
as a condition precedent to an ultimate increase in the
PBGC’s claims against LTV is a question not yet ripe
for resolution. Therefore, neither restoration nor the
Enforcement Action violate the automatic stay provi-
sions of the Code.
IV. Section 362(b)(4) of the Code Exempts Restoration
Even if restoration could be deemed to constitute a
violation of the automatic stay, the PBGC’s decision to
restore the Plans falls within the exemption from the
automatic stay found in section 362 (b) (4) of the Code
for police or regulatory actions taken to protect the pub-
lie health and welfare. The stay provisions of section
362(a) do not “change the business and regulatory en-
vironment in which a debtor operates,” In re Beker
Indus. Corp., 57 B.R. at 624, or give a debtor “carte
blanche to ignore non-bankruptcy law,“ Midlantic Nat’!
dispute that service of a notice of acceleration would directly in-
crease their claims. Here, by contrast, whether restoration would
lead to retermination and what the consequences of retermination
would be are issues that mercifully are not appropriate for present
adjudication.
74a
Bank v. New Jersey Dep’t of Environmental Protection,
474 U.S. 494, 502 (1986). Congress made this clear by
“expressly providſ ing] that the automatic stay provisions
of the Bankruptcy Code do not apply when the govern-
ment is seeking to enforce its police or regulatory power.”
United States v. Wheeling-Pittsburgh Steel Corp., 818
F.2d 1077, 1086 (3d Cir. 1987). Thus, section 362
(b) (4) of the Code provides that the filing of a bank-
ruptcy petition does not operate as a stay:
under subsection (a) (1) of [section 362] of the
commencement or continuation of an action or pro-
ceeding by a governmental unit to enforce such
governmental unit’s police or regulatory power.
11 U.S.C. § 362(b) (4).
Leaving aside for the moment questions as to the ap-
propriateness of the procedures followed by the PBGC
in restoring the Plans“ and as to the merits of the
restoration decision, there is no dispute that ERISA ex-
pressly provides for restoration as an act by the PBGC
to carry out its regulatory authority under Title IV. A
primary purpose of ERISA as a whole is “the protection
of individual pension rights.” H.R. Rep. No. 533, 93rd
Cong., 2d Sess., reprinted in 1974 U.S. Code Cong. &
Admin. News 4639. The detailed findings on which
19 LTV objects to the sending of the Restoration Notice announc-
ing that the Plans had been restored as an administrative fait
accompli and to the relief requested in the Enforcement Action—
minimum funding contributions—as being outside the PBGC’s reg-
ulatory authority under Title IV. As discussed above, to penalize
the PBGC for overreaching its express statutory authority and
thereby to preclude judicial consideration of restoration as a regu-
latory act would serve neither the interests of the parties nor
resolve the consequences of restoration, when properly effected.
Without guidance from prior administrative practice or court deci-
sions construing the restoration provision, the PBGC moved through
uncharted waters as it carried out what it believed to be its statu-
tory mandate. Whatever errors it may have made in that process
are within the powers of the court to correct.
— i ne
75a
ERISA is predicated show that the statute was enacted
to “provide for the general welfare” by protecting the
“continued well-being and security of millions of em-
ployees” who participate in pension plans. 29 U.S.C.
1001 (a). Congress found that “owing to the termina-
tion of plans before requisite funds have been accumu-
lated, employees and their beneficiaries have been de-
prived of anticipated benefits. Id.; see Nachman
Corp. v. PBGC, 446 U.S. 359, 362 (1980). Therefore,
one of the principal purposes of Title IV was “to ensure
that employees and their beneficiaries would not be de-
prived of anticipated retirement benefits by the termina-
tion of pension plans before sufficient funds have been
accumulated in the plans.” PBGC v. R.A. Gray & Co.,
467 U.S. 717, 720 (1984). “[TJo prevent the great per-
sonal tragedy’ suffered by employees whose vested bene-
fits are not paid when pension plans are terminated,”
Nachman Corp. v. PBGC, 446 U.S. at 374, Congress es-
tablished the pension plan termination insurance pro-
gram in Title IV of ERISA. SEPPAA strengthened that
program for single-employer pension plans like the plans
in this case.
Title IV establishes the PBGC as a corporation admin-
istered by a board of directors and endows it with cer-
tain regulatory, investigatory and regulatory powers with
respect to the provisions of Title IV. 29 U.S.C. §§ 1302
(b) (3), 1303 (a)-(e). The PBGC’s regulatory powers
under Title IV include the express authority to “restore”
terminated plans to their pretermination status. Section
4047 of ERISA provides in relevant part:
In the case of a plan which has been terminated un-
der section 4041 or 4042, the PBGC] is authorized
in any such case in which the [PBGC] determines
such action to be appropriate and consistent with its
duties under this title to restore the plan to its pre-
termination status, including, but not limited to, the
76a
transfer to the employer or a plan administrator of
control of part or all of the remaining assets and
liabilities of the plan.
29 U.S.C. § 1347.
The PBGC contends that restoration serves each of the
purposes of Title IV. As set forth in section 4002(a) of
ERISA, those purposes are: (1) to encourage the con-
tinuation and maintenance of voluntary private pension
plans for the benefit of their participants; (2) to provide
for the timely and uninterrupted payment of benefits un-
der plans to which Title IV applies; and (3) to maintain
premiums at the lowest level consistent with the PBGC’s
obligations under the statute. 29 U.S.C. § 1302(a) (1)-
(3). Congress further declared in SEPPAA that the pol-
icy of Title IV is, among other things, (1) to increase
the likelihood that participants under single-employer de-
fined pension plans will receive their full benefits and (2)
to provide for transfer of unfunded pension liabilities to
the termination insurance system only in cases of severe
hardship. See 29 U.S.C. § 1001b (3), (4). Whether or
not restoration can ultimately be sustained on the
grounds that it furthers the purposes of Title IV, there
is a sufficient relationship between the potential effects
of restoration and the policies of Title IV to qualify res-
toration as a regulatory act. For example, when prop-
erly effected, restoration can ensure that participants and
beneficiaries will receive their full benefits and continue
to accrue benefits at pretermination levels in accordance
with the terms of the restored plans. Similarly, restoring
plans to a financially sound employer limits the transfer
of unfunded pension liabilities to the pension insurance
program to cases of severe hardship. For the same rea-
son, by relieving the financial strain on the PBGC, res-
toration serves to maintain premiums at a reasonable
level.
LTV argues, however, that even if the Enforcement
Action could be deemed within the scope of the PBGC’s
77a
Title IV of
regulatory and enforcement powers under
ERISA, the exclusion for regulatory acts does not apply
because the primary purpose of the PBGC’s act of restor-
ing the Plans was the * of a 12 —
The pecuniary purpose test for acts govern
agencies stems from the legislative history of the Code
which provides, in part, that section 362(b) (4):
is intended to be given a narrow — in
order to permit governmental units to pursue actions
to protect the public health and safety and not to
apply to actions by a governmental unit to proteet a
pecuniary interest in property of the debtor or prop-
erty of the estate.
inted in
124 Cong. Rec. H 11089 (Sept. 28, 1978), reprin
1978 U.S. Code Cong. & Ad. News 6436, 6444-45 (state-
ment of Rep. Edwards).
Paragraph (4) excepts commencement or continua-
tion of rou and proceedings by governmental
units to enforce police or regulatory powers. Thus,
where a governmental unit is suing a debtor to pre-
vent or stop violation of fraud. environmental pro-
tection, consumer protection, safety, or similar police
or regulatory laws, or attempting to fix damages for
violation of such a law, the action or proceeding is
not stayed under the automatic stay.
inted
H.R. Rep. No. 595, 95th Cong., 2d Sess. 343, reprin
in 1978 U.S. Code Cong. & Ad. News 5963, 6299 S. Rep.
No. 989, 95th Cong., 2d Sess. 52, reprinted in 1978 US.
Code Cong. & Ad. News 5787, 5838.
In support of their respective positions, LTV has cited
numerous cases holding that governmental actions in-
tended primarily to protect a pecuniary interest are not
exempted by section 362(b) (4)* and the PBGC has cited
} i 2d 768, 775-76 (8th
20 See, e. ., In re State of Missouri, 647 F.2d
Cir. 1981), cert. denied, 454 U.S. 1162 (1982) (state regulation of
78a
almost as many holding that governmenta! actions taken
in the public interest fall within the exemption, notwith-
standing some incidental financial benefit.“ As the bank-
ruptey court observed in In re Beker Indus. Corp., the
grain storage transactions and grain warehouses related to the
state’s pecuniary interest in, and conflicted with, bankruptcy court's
control over estate property and was not witihn the 3¢?(b) (4) ex-
ception); In re Organized Maintenance, Inc., 47 B.R. 791, 795
(Bankr. E.D.N.Y. 1985), vacated on other grounds, 69 B.R. 298
(E.D.N.Y. 1987) (Department of Labor administrative proceeding
for employee wages and fringe benefits not excepted by 362(b) (4)
because the government was trying “to protect the pecuniary inter-
est [of the contractor’s employees in property of the estate”); Jn
re Greenwald, 34 B.R. 954, 957 (Bankr. S.D.N.Y. 1983) (Depart-
ment of Health stayed from pursuing administrative proceedings;
“Manifestly, the Commissioner [sought] to protect a pecuniary in-
terest in property of the debtor to the extent of a claim for medicaid
overpayments”) ; Jn re Geffken, 43 B.R. 697, 701 (Bankr. N. D. Ohio
1984) (state’s attempt to enjoin further business operations of
debtor for failure to pay premiums to worker's compensation fund
held subject to Section 362(b) (4) since statute enacted for primary
purpose of enforcing state’s pecuniary interest); Jn re Rath Pack-
ing Co., 35 B.R. 615, 622 (Bankr. N.D. Iowa 1983) (state's attempt
to revoke debtor’s self insurance exemption pursuant to worker's
compensation law subject to Section 362(b)(4) since statute al-
though regulatory in nature, primarily relates] to the protection
of the pecuniary interest in the debtor’s property”).
22 See, e.g.. EEOC wv. Rath Packing Co., 787 F.2d 318, 324-25
(8th Cir.), cert, denied, 107 S. Ct. 307 (1986) (stay inapplicable
to EEOC action to enforce Title VII because action, although
brought for the benefit of specific individuals, is more broadly
aimed at preventing harm to the public); Donovan v. Porter, 584
F. Supp. 202, 207 (D. Md. 1984) (ERISA action by Secretary of
Labor against plan fiduciaries to enforce provisions of Title I and
assess a penalty for violations of those provisions “clearly the type
of regulatory action Congress had in mind when it developed the
exceptions to the automatic stay provision”); Jn re Lawson Burich
Assocs., 31 B.R. 604, 612 (S.D.N.Y. 1983) (financiel interests do
not preclude application of section 362(b)(4) where regulation
clearly is in the public interest); Donovan v. TMC Indus., Ltd.,
20 B. R. 997, 1006 (N. D. Ga. 1982) (to allow bankruptcy petition
to preempt relief available under Fair Labor Standards Act to
protect health and welfare of workers “is unimaginable”).
79a
cases construing section 362(b)(4) and the pecuniary
purpose test “do not admit of easy classification.” In
re Beker Indus., 57 B.R. at 629 (comparing cases); see
also In re Lawson Burich Assocs., Inc., 31 B.R. 604, 611
(S.D.N.Y. 1983) (discussing cases). In any event, in
seeking the line between governmental actions to prvtect
a pecuniary interest and those to protect the public health
and safety, courts have drawn distinctions that are in-
appropriate for the instant case. In enacting Title IV,
Congress recognized that the financial security and the
well-being of the employees whose pensions Title IV in-
sures are virtually inseparable interests. See 29 U.S.C.
§ 1001(a). Thus, as the court astutely observed in In re
Century Brass Products, Inc., No. 85 Civ. 585, slip op.
(D. Conn. Nov. 24, 1986), lit is hard to imagine any
action taken by the PBGC that did not involve its pecuni-
ary interest.” In re Century Brass, slip op. at 11. Un-
like employment discrimination or environmental laws,
which arguably have a more direct impact on the non-
monetary aspect of the public health and welfare, Title
IV of ERISA provides for the health and welfare of em-
ployees by securing their pecuniary interests. In carry-
ing out its statutory obligations under Title IV, the
PBGC is, therefore, authorized to take certain actions to
protect itself from unreasonable or unnecessary pecuni-
ary loss. Thus, section 4042 of Title IV permits the
PBGC to terminate pension plans where minimum fund-
ing standards are not met, where benefits are not paid
when due, where a “reportable event.“ such as bank-
ruptey, has occurred, or where “the possible long run
loss of the [PBGC] with respect to the plan may reason-
ably be expected to increase unreasonably if the plan is
not terminated.” 29 U.S.C. § 1342 a. Congress intended
to protect the PBGC from having to stand by and watch
while “a bankrupt employer bleeds itself to death,” and,
therefore, expressly exempted termination proceedings
from the automatic stay. In re Century Brass, slip op. at
11; see 29 U.S.C. 81342 e
80a
Although Congress did not expressly exempt restora-
tion proceedings from the automatic stay, the regulatory
policies and interests that the PBGC seeks to further by
restoring a plan are similar to those it protects when it
terminates a plan. The PBGC’s own pecuniary interests
are simply surrogates for the pecuniary interests of mil-
lions of American workers whose pensions it insures.
Therefore, where, as here, the PBGC exercises it statu-
tory authority in a manner that it believes furthers such
ERISA policies as maintaining premium costs at reason-
able levels so as to encourage the continuation and main-
tenance of voluntary private pension plans and permit-
ting termination only in cases of severe hardship, the
PBGC acts on behalf of the well-being of millions of
American workers whose future ability to provide food,
clothing, and shelter for themselves and their families
depends on the security of their pensions.”
22 Here, the USWA, the PBGC’s most immediate constitutency, has
filed a brief as amicus curiae in which it argues that the 1987 CBA
Plans do not abuse Title IV and cannot serve as a basis for the
PBGC’s restoration decision. Thus, on at least one issue the USWA
has taken a position contrary to the PBGC, although the USWA
has not taken a position with respect to the larger issue of the
PBGC’'s restoration authority. On the other hand, Solidarity USA,
Inc., representing certain LTV retirees who do not believe their
interests are adequately represented by the USWA, has filed a brief
in support of the PBGC's decision to restore the Plans. Solidarity
USA argues that LTV Steel should be required to pay retirees their
full benefits unless LTV can demonstrate that it would be a severe
hardship to do so. That the USWA, after collective bargaining for
what it considered to be the most complete benefit arrangement it
could achieve for its members under the circumstances, has adopted
a position that puts it in direct conflict with the PBGC does not
call into question the legitimacy of the PBGC’s claim to act on
behalf of America’s workers. In any case in which it exercises its
regulatory authority under Title IV, the PBGC is required to act
in a manner consistent with its statutory duties which encompass
the well-being of all employees whose pensions are insured under
Title IV.
81a
The PBG C proceeded with restoration and the Enforce-
ment Action on the belief that its acts were exempt from
the operation of the automatic stay. Where a govern-
mental unit determines that its police power or regula-
tory proceeding is exempt from the automatic stay under
section 362(b) (4), it is not required to petition the bank-
ruptey court for relief from the stay prior to commenc-
ing or continuing its proceeding. NLRB v. Edward
Cooper Painting, Inc., 804 F.2d 934, 939 (6th Cir. 1986).
Totally aside from the merits of the restoration, res-
toration is exempt from the stay under section 362(b) (4)
as an act to enforce the PBGC’s regulatory authority in
furtherance of the public health and welfare.
The Enforcement Action
The central issue in the PBGC’s Enforcement Action
is the validity of the agency’s determination to restore
the Plans. The PBGC’s complaint states simply that,
pursuant to authority granted in section 4047 of ERISA,
29 U.S.C. § 1347, the PBGC restored the Plans and that
LTV Steel has refused to comply with the restoration.
The complaint seeks an order directing LTV Steel to com-
ply with the Restoration Notice by operating the Plans
as ongoing pension plans. This court has jurisdiction
under section 4003 (e of ERISA, 29 U.S.C. § 1303(e).”
Although the PBGC has initiated judicial reveiw by
these proceedings, the restoration decision constitutes
final agency action; therefore, judicial review of that
agency decision is governed by the Administrative Pro-
cedure Act (“APA”), 5 U.S.C. § 701 et seg. Cf. Sierra
28 Under section 4003 (e) (1), 29 U.S.C. § 1303(e) (1), the PBGC
is authorized to bring “[clivil actions for appropriate relief,
legal or equitable or both, to enforce the provisions of [Title IVI.“
Similarly, section 4003(f)(1) of ERISA, 29 U.S.C. § 1348(f) (1),
provides that “any person who is .. . adversely affected by any
action of the [PBGC] with respect to a plan in which such person
has an interest may bring an action against the [PBGC) for
appropriate equitable relief in the [district court].“
Club v. United States Army Corps of Eng’rs, 772 F.2d
1043 (2d Cir. 1985) (where judicial review not expressly
provided under agency’s enabling statute, review is under
APA).
V. The Scope of Review
On the PBGC’s motion for summary judgment, the ap-
propriate standard for relief is whether the PBGC’s de-
cision was “arbitrary, capricious, an abuse of discretion,
or otherwise not in accordance with the law.” See 5
U.S.C. § 706 (2) (A).“ Judicial review on the instant mo-
tion will be limited to an examination of the PBGC Rec-
ord which documents the agency's decision to restore the
Plans. See Florida Power & Light Co. v. Lorion, 470
U.S. 729, 743-44 (1985); Vermont Yankee Nuclear
Power Corp. v. Natural Resources Defense Council, Inc.,
435 U.S. 519, 549 (1978).
Summary judgment is to be granted where there are
no material facts in dispute and the moving party is en-
titled to judgment as a matter of law. Fed.R.Civ.P.
56(¢c). Where, as here, the case involves review of agency
action, the material facts are those set forth in the ad-
ministrative record. Milton v. Harris, 616 F.2d 968, 975
(7th Cir. 1980); see Camp v. Pitts, 411 U.S. 138, 142-43
Since ‘tle IV does not expressly require the PBGC to hold a
hearing or aake formal findings pursuant to a hearing record
pursuant to 5 U.S.C. §§ 554, 556, and 557, the proper standard for
judicial review of the PBGC's decision is not the “substantial evi-
dence” test which is appropriate when reviewing findings made on
a hearing record. See 5 U.S.C. 706% (E LTV argues that
because the restoration decision was “adjudicatory in nature and
the [PBGC’s) factfinding procedures [were inadequate,” see Citi-
zens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 415
(1971), de novo review is required to determine whether the
PBGC's decision was “unwarranted by the facts.” See 5 U.S.C.
§ 706(2)(F). However, on the instant motion for summary judg-
ment, a preliminary review of the PBGC's acts and procedures is
required to determine whether the standards for de novo review
have been satisfied.
(1973). In such a case, [the task of the reviewing
court is to apply the appropriate APA standard for re-
view, 5 U.S.C. § 706, to the agency decision based on the
record the agency presents to the reviewing court.” Flor-
ida Power & Light v. Lorion, 470 U.S. at 743-44. The
validity of the agency’s action must “stand or fall” on
that record. Camp v. Pitts, 411 U.S. at 143; see also
Vermont Yankee, 435 U.S. at 549. That determination
is purely a question of law.
Judicial review of agency action under the “arbitrary
and capricious” standard mandates a searching inquiry
into the facts and their relationship to the articulated
basis for an agency’s action. After satisfying itself that
the agency has acted within the scope of its authority,
the court must engage in a “thorough, probing, in-depth”
review to determine whether the agency’s decision-
making process was reasoned, took into account all rele-
vant policies and information, and reached a result con-
sistent with congressional intent. Citizens to Preserve
Overton Park, Inc. v. Volpe, 401 U.S. 402, 416-17 (1971) ;
Sierra Club » United States Army Corps of Eng’rs, 772
F.2d at 1051. A reviewing court must determine whether
the agency's stated explanation for its action is “based
on a consideration of the relevant factors and whether
there has been a clear error of judgment.” Motor Vehicle
Mfrs. deen v. State Farm Auto Ins. Co., 463 U.S. 29, 43
(1983) (quoting Bowman Transportation, Inc. v. Arkan-
sas-Best Freight Sys., Inc., 419 U.S. 281, 285 (1974)).
As the Supreme Court held in State Farm:
[nlormally, an agency rule would be arbitrary and
capricious if the agency has relied on factors which
Congress has not intended it to consider, entirely
failed to consider an important aspect of the prob-
lem, offered an explanation for its decision that runs
counter to the evidence before the agency, or is so
implausible that it could not be ascribed to a differ-
ence in view or the product of agency expertise.
84a
State Farm, 463 U.S. at 43. While a court may not
stitute its own judgment for that of the agency, it
larly may “not supply a reasoned basis for the agency's
action that the agency itself has not given.” Id.
agency has given appropriate consideration to competing
policies if its actions may implicate a national policy
beyond its area of expertise. An agency must be cogni-
zant of any possible conflict and must adopt narrowly
drawn remedies in a manner that will accommodate that
national policy. See, e. g., Burlington Truck Lines, Inc.
v. United States, 371 U.S. 156, 172-74 (1962) (where
agency’s lack of expertise and encroachment into areas
beyond its jurisdiction contravene national policy, choice
of “sweeping relief” inappropriate where “more precise
and narrowly drawn” remedy available) ; LaRose v. FCC,
494 F.2d 1145, 1146 n2, 1147-50 (D.C. Cir. 1974)
(where agency action encroaches upon or compels con-
sideration of federal policies beyond the expertise of the
agency, the agency must be alert to and must minimize
any conflict) .
Finally, the court must examine the agency’s proce-
dural approach to determine whether it was responsible
and consistent with its statutory purpose. Under the ar-
bitrary and capricious standard, el ven if the court
concludes that an agency’s findings are supported by sub-
stantial evidence, it may nonetheless find the procedures
used to reach a final determination ‘reflect arbitrary and
capricious action.. O’Connor v. Heckler, 613 F. Supp.
1043, 1046 (S.D.N.Y. 1985), (quoting Bowman Transp.
v. Arkansas-Best Freight Sys., 419 U.S. at 284): accord
United States Lines, Inc. v. Federal Maritime Comm'n,
584 F.2d 519, 526 (D.C. Cir. 1978) (under arbitrary
and capricious standard, “the court must examine the
procedures employed by the agency in reaching its deci-
sion to ensure that these procedures comply with appli-
cable statutory and constitutional requirements”); see
85a
also Overton Park, 401 U.S. at 417 (under arbitrary and
capricious standard, “(t]he final inquiry is whether the
Secretary’s action followed the necessary procedural re-
quirements” ).
The PBGC’s Restoration Notice informed LTV Steel
that restoration was appropriate and consistent with its
duties under Title IV of ERISA. The PBGC’s decision
was based upon three principal findings: (1) LTV Steel
had abused the pension plan termination insurance pro-
gram by establishing follow-on plans that essentially con-
tinued the terminated Plans, with the PBGC picking up
much of the cost; (2) the financial condition of LTV
Steel had substantially improved since the Plans were
terminated; and (3) LTV Steel had demonstrated its
willingness to fund retirement programs. The scope of
the PBGC’s restoration authority and the legal and fac-
tual sufficiency of the grounds asserted for restoration
will be determined below.
VI. The PBGC’s Restoration Authority
To determine whether the PBGC has the authority to
restore terminated plans to their pretermination status,
reference must first be made to the language of the stat-
ute. Reiter v. Sonotone Corp., 442 U.S. 330, 337 (1979).
Section 4047 of ERISA provides, in part:
In the case of a plan which has been terminated
under section 4041 or 4042, the [PBGC] is author-
ized in any such case in which the [PBGC] deter-
mines such action to be appropriate and consistent
with its duties under [Title IV], to take such action
as may be necessary to restore the plan to its pre-
termination status, including, but not limited to, the
transfer to the employer or a plan administrator of
control of part or all of the remaining assets and
liabilities of the plan.
29 U.S.C. § 1347. This provision contains little in the
way of restrictive language. Section 4047 does not on
—
86a
its face limit the PBGC’s ability to restore plans during
an ongoing bankruptcy case, nor does it require that the
PBGC apply to the district court for a decree adjudicat-
ing that the plan be restored. Cf. 29 U.S.C. § 1341 (e) (2)
(B) (ii) (bankruptcy court approval required for distress
termination), 1342 (e) (court order required for in-
voluntary termination by PBGC). Indeed, section 4047
provides that the “transfer to the employer or a plan
administrator of control of . . . the remaining assets and
liabilities of the plan” is an appropriate means for re-
storing a plan. If Congress had intended that such direct
action be preceded by application to a district court, it
surely could have so provided in the statute.”
25 The legislative history of section 4047 offers little guidance as
to the intended scope of the PBGC’s restoration authority. The
House Conference Report provides:
Restoration of plans.
Neither the House bill nor the Senate amendment had any
specific provision that procedures against a plan in the termina-
tion phase might be abandoned by the [PBGC] if the employer
and plan enjoyed a favorable reversal of business trends, or if
some other factor made termination no longer advisable.
Under the conference substitute, the [PBGC] may cease any
termination activities and do what it can to restore the plan
to its former status. As a result, a terminated plan being
operated by a trustee as a wasting trust may be restored if,
during the period of its operation by the trustee, experience
gains [sic] or increased funding make it sufficiently solvent.
The [PBGC] may, when appropriate, transfer to the employer
or plan administrator part or all of the remaining assets and
liabilities.
H.R. Conf. Rep. No. 1280, 93d Cong., 2d Sess., reprinted in 1974
U.S. Code Cong. & Ad. News 5038, 5157-58.
While these statements accord with the statute’s unrestricted
grant of restoration authority to the PBGC, language in the legis-
lative history of SEPPAA suggests that Congress recognized that
the decision on restoration should rest with the appropriate adjudi-
cative entity, government agency or court in cases of challenges by
third parties to the propriety of a proposed voluntary plan termi-
nation, and that the PBGC is not the appropriate decision-maker:
87a
LTV and several of the intervenors urge this court to
construe section 4047 as limiting the PBGC’s restoration
powers to the ability to initiate a civil action for restora-
tion under Title IV’s civil enforcement provision. See
29 U.S.C. § 1303 (e). Imposing such a requirement on
the PBGC, LTV argues, reconciles the court order re-
quirements of Title IV's termination provisions with the
PBGC’s ability to restore plans under section 4047. Un-
der section 4041 of ERISA, the distress termination of a
single-employer pension plan of a company undergoing
Chapter 11 reorganization can only be achieved with the
express approval of the bankruptcy court. See 29 U.S.C.
§ 1341(c) (2) (B) (ii). Similarly, if the PBGC seeks to
effect an involuntary plan termination, section 4042(c)
of ERISA expressly requires application “to the appro-
priate United States district court for a decree adjudi-
cating that the plan must be terminated.” 29 U.S.C.
§ 1342(c). In light of the detailed statutory provisions
The Committee recognizes that the PBGC is not (and should
not be) in a position to determine whether a proposed termina-
tion violates the contractual or statutory rights of any affected
parties. Rather this determination must ultimately rest with
the appropriate adjudicative entity, government agency, or
court, as the case may be. Furthermore, the decision on what
the appropriate remedy should be if the termination is found
to have been improper (and specifically, whether or not the plan
should be restored) also rests with the appropriate adjudica-
tive entity, government agency or court.
H.R.Rep. No. 272, 99th Cong., 2d Sess. 293, reprinted in 1986 U.S.
Code Cong. & Admin. News 944 (emphasis added).
At the same time, the remarks of Senator Nickles, the Senate
Floor Manager of SEPPAA, reveal his expectation that section
4047 places the authority to restore firmly with the PBGC: “I
expect that the [PBGC] will block . other abuses of the...
termination rules under Title IV,” such as employers’ “actions to
impel involuntary termination of a plan by the PBGC and thereby
limit the liability to plan participants and the PBGC,” or actions
for the principal purpose of meeting the criteria in section 4041
(e) (2) (B) of ERISA for a distress termination. 132 Cong. Rec.
82726 (daily ed. Mar. 14, 1986) (statement of Sen. Nickles).
88a
governing the right to terminate by court order, LTV
argues that section 4047’s prescription that the PBGC
can thereafter take “such action as may be necessary”
to restore should be viewed as a method for allowing res-
toration upon court application by the PBGC, with the
plan sponsor having an opportunity to be heard in a
formal adjudicatory setting. Restoration may then be
proper, LTV contends, if the court that approved termi-
nation finds restoration appropriate because the factors
underlying the termination have changed materially—
not because the PBGC’s reasons for wanting restoration
are not arbitrary and capricious.
Despite the symmetrical appeal of LTV’s contention
that Congress could not have intended to grant the PBGC
unilateral veto power over court approved termination,
established principles of statutory construction compel
the conclusion that Congress did intend to grant the
PBGC the power to restore terminated plans without
first obtaining court approval. First, a court may not
impose additional procedural requirements upon an ad-
ministrative agency. Vermont Yankee, 435 U.S. at 523-
25. Second, the ordinary meaning of the language of
section 4047 suggests that the PBGC needs no judicial
authorization to restore a plan. “Since it should be gen-
erally assumed that Congress exp its purposes
through the ordinary meaning of the wordy it uses.
‘fa]bsent a clearly expressed legislative ixitention to the
contrary, [statutory] language must ordinarily be re-
garded as conclusive.’” Escondido Mutual Water Co. v.
La Jolla Band of Mission Indians, 466 U.S. 765, 772
(1984) (quoting North Dakota v. United States, 460
U.S. 300, 312 (1983)). Third, the example that Con-
gress used to indicate what might be a proper method
of restoring a plan—transferring the plan’s assets and
liabilities to the plan sponsor—indicates that Congress
intended direct PBGC action rather than indirect action
through a court proceeding.
89a
Moreover, related provisions of ERISA support the
conclusion that Congress intended the PBGC to restore
plans through administrative determinations. In addi-
tion to the court order requirements in the termination
provisions already discussed, Congress also required court
approval for action by the PBGC to collect unpaid insur-
ance premiums, 29 U.S.C. §1307(c); to enforce the
PBGC’s lien with respect to employer liability, 29 U.S.C.
§ 1368(d); and to enforce subpoenas, 29 U.S.C. § 1303
(e). Congress’ failure to include such a provision in sec-
tion 4047 is “strong evidence” that it did not intend to
impose a requirement of prior court approval with re-
spect to restoration. See Richerson v. Jones, 551 F.2d
918, 928 (3d Cir. 1977). [Where a statute with re
spect to one subject contains a given provision, the omis-
sion of such provision from a similar statute is significant
to show a different intention existed.” Jd. (quoting Gen-
eral Electric Co. v. Southern Constr. Co., 383 F.2d 135,
138 n.4 (5th Cir. 1967).
Enforcing the literal meaning of section 4047 is not
inconsistent with Title IV’s overriding purpose or its
statutory scheme. Congress enacted Title IV to encour-
age the continuation of voluntary private pension plans
and to ensure uninterrupted payment of benefits to par-
ticipants and beneficiaries. 29 U.S.C. §4302(a). The re-
quirement of court approval for a distress termination
under section 4041(c) or an involuntary termination un-
der section 4042 is u
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