UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
In
re: )
)
UNITED
AIR LINES, INC., et al., )
)
Debtors. )
)
PENSION
BENEFIT GUARANTY CORPORATION, )
)
Plaintiff, ) Chapter 11
)
vs. ) Case No. 02-B-48191
) (Jointly Administered)
UNITED
AIR LINES, INC., as Plan Administrator for )
the
United Airlines Pilot Defined Benefit Pension Plan, ) Adversary Proc. No.
05-481
)
Defendant, )
) Honorable
AIR LINE PILOTS ASSOCIATION, )
INTERNATIONAL, UNITED RETIRED PILOTS )
BENEFIT
PROTECTION ASSOCIATION, )
TERSTIEGE,
P.
FINK,
)
Intervenors. )
EMERGENCY MOTION OF THE UNITED RETIRED PILOTS BENEFIT PROTECTION ASSOCIATION
FOR A STAY PENDING APPEAL OF
THE JUDGMENT ENTERED IN FAVOR OF THE PENSION
BENEFIT GUARANTY CORPORATION AND TO ALLOW FOR THE
CONTINUED PAYMENT OF ALL PENSION BENEFITS TO RETIRED PILOTS
The United Retired Pilots Benefit Protection Association and Roger D. Hall, Dennis D. Dillon, Gerard Terstiege, Eugene M. Cummings, Raymond P. Fink, James M. Krasno and William L. Rutherford (collectively referred to as “URPBPA”), hereby moves this Court, pursuant to Bankruptcy Rule 8005 and the other authorities cited below, to enter an order staying the enforcement and effectiveness of the October 26, 2005 judgment entered in favor of the Pension Benefit Guaranty Corporation (the “PBGC”) and against the defendants and intervenors so that full and uninterrupted pension payments can continue. In support of its motion, URPBPA states as follows:
I. Introduction
On October 26, 2005, this Court entered its Order Terminating The United Airlines Pilot Defined Benefit Pension Plan and its Memorandum of Decision which states that the PBGC met its burden of proof in the “involuntary termination” case under 29 U.S.C. § 1342(c). URPBPA will appeal the order and will seek an expedited briefing and decision schedule from the reviewing courts. The order should be stayed while URPBPA’s appeal is pending and all pension payments (including all tax-qualified and non tax-qualified pension payments) to United’s retired pilots should continue until the appeal is resolved. The prior order of this Court approving the agreement between the PBGC and United calls for the continuation of the Pilot Plan until conclusion of this litigation and the litigation has not concluded because URPBPA is appealing this Court’s judgment. While United should be required to continue maintaining the entire Pilot Plan, there are additional reasons why the payment of non-qualified pension payments should continue. First, the conditions that are set out for the termination of the Pilot Plan under this Court’s order Letter Agreement 05-01 between ALPA and United have not been met and, second, United has no legal justification to support its decision to stop paying non-qualified pension benefits to retired pilots. URPBPA also satisfies the test for a stay order under Rule 8805 and the applicable case law.
This
motion is an emergency in light of the due date for URPBPA’s appeal of the
termination order,
II. Relevant
Factual Background
A. The
Filing Of The PBGC’s Case And The Discovery Dispute
The
PBGC filed this case on
On
During the April 13, 2005 hearing, the Court observed, based upon the statutory language and legislative history of 29 U.S.C. § 1342, that the PBGC should be required to prove, at a de novo trial, that it is entitled to prevail under the standard set forth at § 1342(c). In addressing the attorney for the PBGC, the Court stated “I think you would agree with me if the statute sets up a situation in which the agency is a plaintiff in a judicial action, that it ought to have the same burden of proof that any plaintiff in a judicial action would have without any statutory indications to the contrary” (Exhibit B, pp. 14-15). Although the Court provided a number of other reasons why it believed the PBGC had an obligation to prove at trial, and by a preponderance of the evidence, that it is entitled to relief under § 1342(c), the Court permitted discovery but did not make a definitive ruling regarding the applicable standard of review at that time.
B. The PBGC’s Motion For Summary Judgment
On
On
C. The Kramer Report And Other Documents
Admitted Into Evidence At Trial
All of the Court’s evidentiary
rulings were made on
Kramer explains that even “applying United’s own methodology and using its own numbers, my analysis suggests that United can substantially achieve most, if not all, of its targeted credit metrics in a variety of scenarios where it retains some combination of Pension Plans” (ALPA Exhibit 4 at AR 116). Even though Kramer was “not convinced that United cannot obtain exit financing unless its business plan shows it surpassing the Snyder Declaration’s suggested targets for each of the credit metrics listed in the paragraph above,” the Kramer Report shows that, at the time the PBGC decided to seek the termination of the Pilot Plan, United could have satisfied all of its own financial metrics if it retained the defined benefit plans for the flight attendants and the pilots. For instance, the Kramer Report shows that the there would be very little difference between United’s fixed charge coverage ratios under a scenario where United terminated all of its defined benefit plans as opposed to a scenario where United continued to maintain its plans for its flight attendants and pilots.
The Kramer Report demonstrates that,
at the time the PBGC decided to terminate the Pilot Plan, it was the PBGC’s
position that United had failed to demonstrate that the Pilot Plan needed to be
terminated in order for United to obtain adequate exit financing and
reorganize. Not a single document
admitted into evidence contradicts
D. Trial
Testimony, URPBPA’s Motion For
Directed
Finding and Trial Conclusion
Likewise, none of the testimony presented at trial supported the PBGC’s position that when it made its decision to seek termination, the Pilot Plan was likely to terminate. None of the trial witnesses presented testimony regarding whether United could afford to continue paying for the Pilot Plan.
The only witnesses permitted to
testify on behalf of the PBGC, Karen Justesen (Exhibit C, pp. 33-57, 136-44)
and Thomas Lowman (Exhibit C, pp. 57-68, 144-162), testified regarding the
PBGC’s actuarial calculations and their opinions that the amount the PBGC’s
unfunded benefit liabilities would change over time. Although the PBGC sought to introduce
additional testimony from a PBGC attorney,
Because the PBGC failed to submit any evidence regarding whether the increase in the PBGC’s liability would be unreasonable in light of the financial condition of United and the Pilot Plan, URPBPA moved for a directed finding, pursuant to Federal Rule of Civil Procedure 52(c), after the PBGC presented its case and rested (see Exhibit C, p. 94-96). The Court stated that it would reserve its ruling on the issue and the trial proceeded.
ALPA and URPBPA presented their
witnesses.
The Court heard closing arguments on
The problem with the PBGC’s closing
argument is that it was fundamentally inconsistent with the evidence that was
actually entered into evidence at trial.
Nearly all of the PBGC’s admissible evidence consisted of testimony from
and documents created by the PBGC’s actuaries.
Not one piece of evidence introduced at trial, by the PBGC or any of the
other parties, supported the PBGC’s argument that the termination of the Pilot
Plan was “inevitable.” The testimony of
H. The Court’s Written Opinion And Termination Order
On October 26, 2005, this Court issued its written opinion (a copy is attached hereto as “Exhibit E”) and entered an order terminating the Pilot Plan and appointing the PBGC as the statutory trustee of the Pilot Plan (a copy of the order is attached hereto as “Exhibit F”). In its opinion, the Court observed that “real issue” in the case is whether the PBGC has satisfied the § 1342(c) standard by demonstrating that it needed to terminate the Pilot Plan in December 2004 to avoid an “unreasonable increase” in the PBGC’s liability (Exhibit E, p. 5). The Court observed that in order to satisfy this standard, the PBGC is required to show: (1) that the PBGC will suffer “a monetarily significant increase in PBGC’s liability” if the plan is not terminated and (2) that the plan is “likely to terminate in an underfunded condition, so that the increase in liability would be reflected in an actual additional loss for PBGC’s insurance fund” (Exhibit E, p. 6).
In applying a two-part test for “unreasonable increase in liability” the Court ruled that the actuarial testimony related to the increased liabilities related to the Pilot Plan demonstrated that the increase in Pilot Plan liabilities after December 2004 were monetarily significant. The Court’s ruling on the second issue (whether the Pilot Plan was likely to terminate) is as follows:
Second, the only evidence bearing on the issue indicates that the Pilot Plan would not continue. PBGC’s administrative record reflected United’s repeated statements in this case that termination of all of its defined benefit plans would be necessary for it to reorganize successfully, and United’s agreements with ALPA and the PBGC contemplated such a termination. Accordingly, even though no witness testified on the subject, PBGC sustained its burden of establishing the likelihood of plan termination.
(Exhibit E, p. 9).
The ALPA-United Agreement
This
Court approved Letter Agreement 05-01 between ALPA and United on
The agreement between the PBGC and United shows that an order staying the actual termination of the Pilot Plan is appropriate because the termination of the Pilot Plan is premature. The PBGC-United agreement makes clear that as agreed upon by PBGC and United and approved by the Court, the format for any termination of the Pilot Plan would be via a trusteeship agreement. (Exhibit H, par. 4c). Exhibit 2 to the PBGC-United agreement then lists the “Additional Terms and Conditions” of that agreement and paragraph 12 of the “Additional Terms” states that “[e]xecution of the trusteeship agreement with respect to the Pilot Plan will occur only after the conclusion of the currently pending Pilot Plan litigation resulting in plan termination.” URPBPA is appealing this Court’s ruling in the involuntary termination trial and the “Pilot Plan litigation” has not concluded. As a result, United is obligated to continue maintaining both the qualified and non-qualified portions of the Pilot Plan until URPBPA has exhausted its appellate rights.
In addition, section 4(c) of Letter Agreement 05-01 between ALPA and United states that the “A Plan shall remain in full force and effect unless (i) the bankruptcy court issues an order declaring that the Company has met the requirements for plan termination under 29 U.S.C. § 1341(c)(2)(B)(ii)…” (Exhibit G, Letter Agreement 05-01 p. 2). This Court has not entered an order declaring that United has met the requirements of § 1341(c)(2)(B)(ii). As a result, even if the qualified portion of the Pilot Plan has been properly terminated by the PBGC, United should still be required to comply with § 4(c) of Letter Agreement 05-01 to the fullest extent possible and, because the PBGC takes no interest in or position with respect to the non-qualified portion of the Pilot Plan, United should do this by continuing to pay non-qualified pension benefits at the same rate at which such benefits have been paid throughout these Chapter 11 proceedings. The fact that United has not done anything in connection with this bankruptcy to strip retired pilots of their contractually-vested right to receive non-qualified pension benefits, and the “full force and effect” provision of the ALPA agreement, demonstrate that United should be compelled to continue paying non-qualified pension benefits.
III. Argument
This Court should enter an order
staying the effectiveness and enforceability of the Court’s
A. The Additional Terms And Conditions
Attached To The Order
Approving The
PBGC-United Agreement Reflects That A Termination
Agreement Is The Agreed-Upon Format For
Termination And
That No Termination Agreement Should be
Entered Into Until The
Litigation Is Concluded
Paragraph 4c of the PBGC-United agreement, approved by the Court, provides that the agreed-upon format for any termination of the Pilot Plan would be via a “termination agreement” with PBGC. (see Exhibit H). United, itself, recognized that termination would occur via a termination agreement with PBGC when United moved this Court to allow it and PBGC to enter into a termination agreement based on United’s belief that the Court had orally ruled on September 27, 2005 in favor of the PBGC in its termination action (See emergency motion for authority to enter into trusteeship agreement with PBGC to terminate pilot plan attached as “Exhibit I”).
Paragraph
12 of the PBGC-United Agreement states that the trusteeship agreement between
United and the PBGC will be executed only after the “conclusion of the
currently pending Pilot Plan involuntary termination litigation…” In other words, the Pilot Plan is not to
terminate until the involuntary termination litigation is fully litigated and,
because both URPBPA and ALPA will appeal the Court’s
B. URPBPA
And The Retired Pilots Represented By URPBPA Also Satisfy
The
Test Under Bankruptcy Rule 8005 For The Entry Of A Stay Order
URPBPA and the retired pilots are
also entitled to a stay of this Court’s
1. URPBPA’s Appeal Has A
Likelihood of Success
A party seeking a Rule 8005 stay
order must show some likelihood of success on the merits. Even in cases where an appellant’s chance of
success on appeal are “less than compelling” and present no more than “an
arguable case for reversing the Bankruptcy Court’s decision,” a stay should be
entered when the appealing party makes a strong showing of irreparable
harm. Moody v. Amoco Oil Co., 31
B.R. 224, 225-26 (W.D.Wis. 1983). The
“likelihood of success” prong of the test should also be relaxed when
relatively novel issues of law are involved.
See In re Mader, 100 B.R.
989, 990-91 (N.D.
URPBPA satisfies the first criteria of the test for a discretionary stay. As this Court knows, the interpretation and application of § 1342(c) in the context of an involuntary termination trial is a matter of first impression and, as a result, the “success on the merits” criteria for the stay requested by URPBPA should be relaxed. The entry of a stay order will preserve the status quo while the District Court and, perhaps, the Seventh Circuit Court of Appeals review the judgment entered in this case.
There is also a strong possibility that it will obtain a reversal of this Court’s judgment on appeal. At trial, the PBGC was required to prove every essential element of its case by a preponderance of the evidence. Unsupported assertions or speculative statements regarding whether the Pilot Plan was likely to terminate, without any actual proof that United cannot afford to maintain the plan, is not proof. A party who is responsible for proving an issue by the preponderance of the evidence cannot satisfy its burden of proof with unsupported speculation. Halperin v. Department of the Air Force, 887 F.2d 1095 (table), 1989 WL 107700, * 5-7 (Fed. Cir. 1989). See also Oiness v. Walgreen Co., 88 F.3d 1025, 1031 (Fed. Cir. 1996); Bryant v. St. Helena Parish School Board, 561 F. Supp. 239 (M.D.La. 1983) (“suspicions are insufficient, however, to amount to proof by a preponderance of the evidence”).
Despite the PBGC’s failure to prove that United was financially unable to continue the Pilot Plan so as to create an unreasonable increase in liability for PBGC, the Court entered a judgment in favor of the PBGC. In the final paragraph of the Court’s memorandum of decision, the Court admitted that there were no witnesses at trial who testified regarding whether it was likely that the Pilot Plan would terminate and ignored the Kramer report, where the PBGC’s own expert showed that United could afford the Pilot Plan. The PBGC did not admit into evidence a single document that demonstrated that it was likely that the Pilot Plan would terminate. Yet, the Court ruled that the PBGC satisfied its burden of proof regarding the likelihood of plan termination because the “PBGC’s administrative record reflected United’s repeated statements in this case that termination of all of its defined benefit pension plans would be necessary for it to reorganize successfully, and United’s agreements with ALPA and the PBGC contemplated such a termination” (Exhibit E, p. 9).
An employer’s self-serving statements regarding its inability to pay to maintain a defined benefit plan is not evidence that a defined benefit plan is, in fact, unaffordable and likely to terminate. The fact that a debtor has entered into agreements which show that the debtor wants to terminate a pension plan is not proof that a plan is likely to terminate when an interested party is ready, willing and able to defend against the debtor’s efforts to terminate the plan.[1]
URPBPA respectfully asserts that it is likely that an appellate court will reverse this Court’s ruling and rule that the PBGC failed to present any evidence regarding a critical issue it was required to prove at trial.
2. United’s
Retired Pilots Will Be Exposed To
Irreparable
Harm If The Stay Order Is Not Entered
The
retired pilots will suffer obvious and irreparable harm if their pension
benefits are not paid on a timely basis.
The expert report of
3. Other
Parties Will Not Be Harmed By The Stay Order
And
The Public Interest Will be Served
URPBPA
will seek to have the appeal of this Court’s
C. The
Order Entered Should Also Require United To
Continue
Paying Non-Qualified Pension Benefits
Alternatively, this Court should enter an order requiring United to at least continue paying non-qualified pension benefits to its retired pilots. This Court’s prior order approving Letter Agreement 05-01 requires United to continue paying non-qualified pension benefits. This Court has also twice enforced United’s obligation to pay non-qualified pension benefits. Both times, the Court ruled that Letter Agreement 05-01’s “full force and effect” provision requires United to continue paying non-qualified pension benefits. Even though the PBGC may have brought about the involuntary termination of the Pilot Plan, the PBGC’s proceedings did not have anything to do with the non-qualified portion of the Pilot Plan and United has not obtained from this Court, as required by Letter Agreement 05-01, an “order declaring that the Company has met the requirements for plan termination under 29 U.S.C. § 1341(c)(2)(B)(ii)…” (see Exhibit G, p. 2). As a result, United should be ordered, once again, to continue paying non-qualified pension benefits as it is required to do under Letter Agreement 05-01.
WHEREFORE, the United Retired Pilots
Benefit Protection Association and
staying the enforcement and effectiveness of the
Date:
UNITED RETIRED PILOTS BENEFIT
PROTECTION
ASSOCIATION, ROGER D. HALL,
By: _________________________________
One of Their Attorneys
Meckler Bulger & Tilson L.L.P.
(312) 474-7900 (phone)
(312) 474-7898 (fax)
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
(202) 986-8000 (phone)
(202) 986-8102 (fax)
o:\9544\pleading\pbgc4042\motionstay2.doc
[1] Both of the referenced agreements
were entered into after the