Matter of M&M Transp. Co.
| Decision Date | 16 April 1980 |
| Docket Number | 79 Civ. 5968 (HFW). 77 B 122. |
| Citation | 3 BR 722 |
| Parties | In the Matter of M&M TRANSPORTATION COMPANY, Debtor. |
| Court | U.S. District Court — Southern District of New York |
Bower & Gardner, New York City, for appellant Swartz; Gerald N. Swartz, New York City, of counsel.
Robert E. Holland, Boston, Mass., for appellants other than Swartz.
Finley, Kumble, Wagner, Heine & Underberg, New York City, for appellee; Fredric E. Weinberg, Seth Zachary, Paul L. Bindler, New York City, of counsel.
This is an appeal from an opinion and order of the Honorable Roy Babitt, Bankruptcy Judge, which (1) denied the motions of the 21 claimant-appellants1 for an order setting aside a prior order confirming a Chapter XI arrangement, and (2) granted the debtor-appellee's motion for summary judgment expunging and disallowing the claims of the claimant-appellants. The debtor-appellee is M&M Transportation Company ("M&M"), and the claimant-appellants are former employees of M&M who participated in an M&M pension plan for non-union employees.
On December 1, 1955, M&M established a pension plan (the "Plan") for its administrative employees. The Plan, as amended through 1971, provided that an employee was entitled to pension benefits when he retired from M&M upon reaching the age of 65 if he had worked for M&M for at least ten years. After the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq., was enacted, the Plan was amended on September 29, 1975 (the "Amended Plan") to provide for termination insurance and more liberalized vesting. Under the Amended Plan, an employee was entitled to receive pension benefits at age 65 if he had retired from M&M upon reaching the age of 55 and had worked for M&M for at least ten years.
On January 19, 1977, M&M filed its Chapter XI petition under the Bankruptcy Act of 1898, 11 U.S.C. § 701 et seq.2 It thereafter terminated substantially all of its operations. The appellants were discharged from their employment, and the Amended Plan was terminated. In June of 1978, M&M entered into an agreement with the Pension Benefit Guaranty Corporation (the "PBGC"), and the latter was substituted as trustee of the Amended Plan to enable it to administer the payment of guaranteed pension benefits. In accordance with section 4022 of ERISA, 29 U.S.C. § 1322, the PBGC advised the appellants, with the exception of Swartz, that only 20 per cent of their anticipated benefits were guaranteed. The PBGC refused to guarantee any part of Swartz's anticipated benefits on the ground that he had not reached age 55 when the Amended Plan was terminated. The PBGC filed a claim with the Bankruptcy Court pursuant to ERISA § 4062, 29 U.S.C. § 1362, for $110,000, which amount represented a $75,000 deficiency in assets in the pension fund to cover guaranteed benefits and some $35,000 to cover actuarial fees charged by M&M's private actuarial firm. M&M did not object to the PBGC's claim, but contended that the claim represented the full extent of its liability to the appellants.
An arrangement plan was confirmed by the Bankruptcy Court in November 1978. Thereafter, the appellants filed proofs of claim for the unguaranteed portion of their anticipated pension benefits. Although their claims were untimely, the appellants argued that M&M misled them into believing that they would be receiving all of their anticipated benefits, and sought to set aside the confirmation order pursuant to section 386 of the 1898 Act, 11 U.S.C. § 786. The appellants alleged that M&M had $12,000,000 in assets and only $6,000,000 in liabilities, and that M&M had substantially underfunded the Amended Plan in violation of its provisions and Title I of ERISA. M&M moved for summary judgment expunging the claims.
Judge Babitt granted M&M's motion and denied the appellants' application, ruling that M&M had fulfilled all of its obligations by consenting to the payment of the PBGC's claim for $110,000. Judge Babitt held, in effect, that an employer is beyond the reach of claims arising from its terminated pension plan except to the extent of its liability to the PBGC under section 4062 of ERISA, 29 U.S.C. § 1362. Judge Babitt consequently ruled that the appellants were not "creditors" within the meaning of the Bankruptcy Act and granted summary judgment against them without reaching their claims of fraud under section 386.
The appellants filed the instant appeal, arguing that they are creditors of M&M who should have been included in the plan confirmed by Judge Babitt. They contend further that M&M prevented them from filing their proofs of claim by fraud and fraudulent concealment, alleging that M&M underfunded the pension plan and, knowing that the plan was underfunded, assured them that they would receive all their anticipated benefits. In his briefs, appellant Swartz maintains that M&M's liability to its employees with vested rights cannot be limited by section 4062 of ERISA, 29 U.S.C. § 1362. He contends that section 4062 deals only with an employer's liability to the PBGC, and that M&M is liable to the claimants under other statutory and contractual obligations, since ERISA could not have been intended to absolve an employer of its obligations to pension plan participants.
This case presents another question of first impression under ERISA: whether an employer may be liable to his former employees for benefits due under a terminated pension plan when the employer has fulfilled his obligations to the PBGC under section 4062 of ERISA, 29 U.S.C. § 1362.
Title IV of ERISA, 29 U.S.C. § 1301 et seq., established a federal system of termination insurance for covered pension plans. See ERISA § 4021, 29 U.S.C. § 1321. The PBGC was created by Congress to administer this program. Id. § 4002, 29 U.S.C. § 1302. Pursuant to section 4022, 29 U.S.C. § 1322, the PBGC guarantees the payment of certain "nonforfeitable" benefits to employees participating in a covered plan upon the plan's termination. Under this scheme, if there are insufficient funds in a covered plan to pay all benefits guaranteed by the PBGC, the benefits will be paid by the PBGC. To finance these payments, the PBGC collects insurance premiums from employers who maintain covered plans. Id. §§ 4006-07, 29 U.S.C. §§ 1306-07. In cases where pension plans are underfunded and the PBGC must pay guaranteed benefits, the employer is required to reimburse the PBGC for benefits paid in excess of fund assets up to 30 per cent of the employer's net worth. Id. § 4062(b), 29 U.S.C. § 1362(b). See generally Nachman Corp. v. PBGC, 592 F.2d 947, 951 (7th Cir.), cert. denied, 442 U.S. 940, 99 S.Ct. 2881, 61 L.Ed.2d 309 (1979).
The PBGC does not guarantee all nonforfeitable benefits of all covered plans. Benefits due under plans which have been in effect for less than five years when they are terminated, or which have been amended within five years prior to termination to provide for increased benefits, are guaranteed only to the extent of (1) the greater of $20.00 per month or 20 per cent of the amount which would have been guaranteed had the plan or amendment been in effect for five or more years, (2) multiplied by the number of years the plan or amendment has been in effect. ERISA §§ 4022(b)(1), (8), 29 U.S.C. §§ 1322(b)(1), (8).
In the instant case, the Amended Plan had been in effect for only one year when it was terminated. See ERISA § 4022(b)(8), 29 U.S.C. § 1322(b)(8). Consequently, the PBGC determined that it could guarantee only 20 per cent of the appellants' anticipated benefits, with the exception of Swartz. After M&M filed its Chapter XI petition, the PBGC put in a claim for $110,000, $75,000 of which represented the amount of guaranteed benefits exceeding the assets in the pension fund. M&M did not object to the PBGC's claim. It is undisputed that as a result of these circumstances M&M met all of its obligations to the PBGC. The only question is whether by doing so M&M necessarily met all of its obligations to its former employees. I think not.
The appellants have alleged that M&M has not in fact met all of its obligations to them under either the applicable provisions of the Plan and Amended Plan or Title I of ERISA. They quote paragraph 8.1 of the Plan, which provides:
From time to time the employer shall make such contributions to the fund as it determines are required to maintain the Plan on a sound actuarial basis.
(Emphasis added). Appellant Swartz also relies on a corporate resolution passed in May 1977 which retroactively amended the Plan to provide that:
The Plan shall be funded on an actuarially sound basis, in that in no event shall the funding be less than that which is required by the minimum funding standards of ERISA.
(Emphasis added). Although M&M points to other provisions which would appear to be inconsistent with those quoted above, see appellee's brief, at 16, any inconsistencies must at this juncture be read in the appellants' favor, since this matter was disposed of by summary judgment.
The provisions of the Plan and the Amended Plan are to be followed as long as they are not inconsistent with ERISA. See Blackmar v. Lichtenstein, 603 F.2d 1306, 1309 (8th Cir. 1979) (). It has been held that the creation of a pension plan constitutes an offer of a unilateral contract by an employer to his employees. By performing the conditions of the offer, the employees accept the offer and a unilateral contract is thereby created. See Hoefel v. Atlas Tack Corp., 581 F.2d 1, 4-5 (1st Cir. 1978), cert. denied, 440 U.S. 913, 99 S.Ct. 1227, 59 L.Ed.2d 462 (1979); Denzer v. Purofied Down Products Corp., 474 F.Supp. 773, 776 (S.D.N.Y.1979); Hardy v. H.K. Porter Co., 417 F.Supp. 1175, 1183 (E.D.Pa.1976). M&M's reliance on the preemption provision of...
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