Amr Corp. v. Comm. of Retired Emps. (In re Amr Corp.)

• Decision Date: 18 April 2014
• Docket Number: Adv. Pro. No. 12–01744 (SHL),Case No. 11–15463 (SHL) (Jointly Administered)
• Citation: 508 B.R. 296
• Parties: In re: AMR Corporation, et al., Reorganized Debtors. AMR Corporation, et al., Plaintiffs, v. Committee of Retired Employees, Defendant.
• Court: U.S. Bankruptcy Court — Southern District of New York

508 B.R. 296

In re: AMR Corporation, et al., Reorganized Debtors.AMR Corporation, et al., Plaintiffs,

v.Committee of Retired Employees, Defendant.

Case No. 11–15463 (SHL) (Jointly Administered)

Adv. Pro. No. 12–01744 (SHL)

United States Bankruptcy Court, S.D. New York.

Signed April 17, 2014

Filed April 18, 2014

GROOM LAW GROUP, CHARTERED, Counsel for the Debtors, 1701 Pennsylvania Avenue, N.W., Washington, D.C. 20006: Gary M. Ford, Esq., Edward J. Meehan, Esq., Lonie A. Hassel, Esq., Lars C. Golumbic, Esq., Sarah A. Zumwalt, Esq.

WEIL, GOTSHAL & MANGES LLP, Counsel for the Debtors, 767 Fifth Avenue, New York, New York 10153: Harvey R. Miller, Esq., Stephen Karotkin, Esq., Alfredo R. Pérez, Esq.

JENNER & BLOCK LLP, Counsel for the Section 1114 Committee of Retired Employees, 353 North Clark Street, Chicago, Illinois 60654: Catherine L. Steege, Esq., Charles B. Sklarsky, Esq., Melissa M. Hinds, Esq., and 919 Third Avenue, 37th Floor, New York, New York 10022: Marc B. Hankin, Esq.

SKADDEN ARPS SLATE MEAGHER & FLOM LLP, Counsel for the Official Committee of Unsecured Creditors, Four Times Square, New York, New York 10036: Jay M. Goffman, Esq., and 155 North Wacker Drive, Chicago, Illinois 60606: John Wm. Butler, Jr., Esq., Albert L. Hogan III, Esq., Ron E. Meisler, Esq., Carl T. Tullson, Esq.

Chapter 11

MEMORANDUM OF DECISION

SEAN H. LANE, UNITED STATES BANKRUPTCY JUDGE

The Debtors AMR Corporation and American Airlines, Inc. (together, the “Plaintiffs”) commenced this adversary proceeding, seeking a declaratory judgment that the health and welfare benefits they currently provide to their retirees have not vested but instead may be unilaterally modified by Plaintiffs. The Plaintiffsseek to shift the cost of these programs entirely from the company to the retirees themselves.

Before the Court is Plaintiffs' motion seeking summary judgment on the question of whether the benefits are vested (the “Motion”) (ECF No. 13). ¹ The Motion is opposed by the Section 1114 Committee of Retired Employees (the “Defendant”), which was appointed in the above-captioned bankruptcy proceeding under Sections 1114(c) and (d) of the Bankruptcy Code to represent the interests of individuals receiving retiree benefits from the Debtors. Under Section 1114(b)(2) of the Bankruptcy Code, the Defendant has the power to protect the rights of these retirees under the Bankruptcy Code with respect to their retiree health and welfare benefits.

The Motion requires the Court to examine whether the relevant documents are reasonably susceptible to interpretation as a promise to provide benefits for life. As explained below, this inquiry turns in part on what documents should be considered as relevant to vesting of benefits. The Plaintiffs contend that none of the operative documents can be read as a promise to provide benefits for life and that the documents reserve the right to modify the benefits. But for reasons set forth below, with limited exceptions, the Court denies the Motion because the relevant documents contain language reasonably susceptible to interpretation as a promise to vest benefits and lack language categorically reserving the Plaintiffs' right to terminate their contributions to the retiree benefits.

BACKGROUND

In November 2011 (the “Petition Date”), the Debtors filed for relief under Chapter 11 of the Bankruptcy Code. See Chapter 11 Petition (Main ECF No. 1). As part of their reorganization efforts, the Debtors sought to renegotiate their existing collective bargaining agreements (“CBAs”) with the labor unions that represent American Airlines employees. The Debtors successfully renegotiated CBAs with the Association of Professional Flight Attendants (“APFA”) and the Transport Workers Union (“TWU”), and the Court approved the corresponding settlements. (Main ECF Nos. 4413 & 4414).

But the Debtors did not reach an agreement with the Allied Pilots Association (the “APA”). After extensive litigation, the Debtors were granted authority to abrogate the APA CBA pursuant to Section 1113 of the Bankruptcy Code. See In re AMR Corp., 477 B.R. 384 (Bankr.S.D.N.Y.2012); In re AMR Corp., 478 B.R. 599 (Bankr.S.D.N.Y.2012). After abrogating that CBA, the Debtors subsequently negotiated a new contract with the APA, and that new CBA was approved by this Court at the end of 2012. See Order Authorizing Entry Into CBA with APA (Main ECF No. 5800).

Having modified the benefits provided to current employees, Debtors have turned their attention to the health and welfare benefits provided to American's retired employees (the “Retiree Benefits”). The Retiree Benefits generally include medical coverage for retirees who are not yet 65, medical coverage for those over 65, and life insurance. See Motion at 1–2. For most retirees, medical coverage is either wholly or partially funded by the Debtors. Id. With respect to medical coverage for retirees who previously worked at Trans World Airlines (“TWA”) before its merger with American, however, the Debtors fund pre–65 coverage with retiree and company contributions, but the 65 and over coverage is funded solely by retiree contributions. Id. The Debtors also fully fund life insurance for all retired employees, including the TWA Retirees. Id. The Debtors now seek to shift the entire cost of all these programs to the retirees themselves while still providing retirees access to benefits at group rates. See Jan. 23, 2013 Hr'g Tr. 36:10–23 (ECF No. 72).

As of the Petition Date, the Debtors provided Retiree Benefits to approximately 46,930 retirees. These retirees can be grouped into several distinct categories: (1) retired union employees from the APA, APFA, and TWU (together the “Union Retirees”); (2) retired TWA employees; and (3) retired non-union employees (the “Non–Union Retirees”). See Motion at 1; Defendant's Statement of Additional Material Facts (“SAMF”) ¶ 4 (ECF No. 27). Among these groups, the terms of the Retiree Benefits vary. The terms further depend on when the employee retired and whether they opted into any early retirement or prefunding agreement with American. These terms are set forth in four sets of documents.²

The first of these are so-called “plan documents,” that is to say documents that have been prepared by the employer sponsoring the plan or the plan administrator. See Dep. of Mary Anderson, Oct. 25, 2012 (“Anderson Dep.”), RC Ex. 2 at 30:3–10; Dep. of Tricia Herschell, Oct. 30, 2012 (“Herschell Dep.”), RC Ex. 6 at 52:13–53:6. These plan documents describe the terms and conditions of the employer's sponsored health insurance coverage, life insurance, and other benefits offered to its employees. Historically, American issued a single plan document (the “Omnibus Plan Document”), which sets out the provision of Retiree Benefits for most employee groups.³ Generally, the Omnibus Plan Documents lacked language promising vested benefits, but they did contain language reserving the company's right to modify or terminate the benefits. Although the language varies slightly, the plan documents generally provided that American “hopes and expects to continue this plan indefinitely, but necessarily must reserve the right to modify, suspend, or terminate it at any time.” ⁴ For a period during the 1980s, however, American issued separate plan documents to cover several specific employee groups rather than an Omnibus Plan Document.⁵ During that time period, only the 1985 Pilots' Plan Document contained the reservation of rights. See RC Ex. 33 at 6.

The second group of documents is the CBAs between American and its labor unions (the APFA, the TWU, and the APA). Unlike plan documents, the CBAs are not drafted by the employer but rather are contracts that are the product of negotiations between the employer and the unions. See SAMF ¶¶ 100–01. The applicable CBAs for each union set forth the terms of employment for those employees, including the benefits that employees would receive upon retirement. Id. Over time, the unions and American renegotiated the terms of the CBAs, often by appending documents to the CBAs. These amendments are often referred to as “supplements,” “attachments,” or “letters.” See RC Ex. 21 ¶ 16 (discussing how provisions, letters, and supplements have been made part of CBAs); see, e.g., 1985 APA CBA, RC Ex. 89 at 4–5 (Table of Contents, Supplemental Agreements, and Letters listed). The CBAs and certain of these amendments contained language that the Defendant claims: (1) prohibits the elimination of benefits, or (2) vests the benefits by linking the right to receive them with the retirees' age or status. The CBAs for each union contain distinct language, and that language further varies among the different versions of a CBA negotiated over time with each union. As such, the Court will address the specific language of the CBAs in the ensuing analysis.

The third group of documents concerns only the benefits of retirees who previously worked for TWA airlines. These benefits were the subject of agreements between TWA and American in TWA's own bankruptcy proceeding more than a decade ago. See RC Exs. 192, 206. During that case, American entered into an agreement to purchase assets of TWA pursuant to Section 363 of the Bankruptcy Code, which provides—among other things—for the sale of debtor's property outside the ordinary course of business (the “TWA Purchase Agreement”). Pursuant to the TWA Purchase Agreement, American agreed to assume liability for TWA retiree benefits but did not assume the actual TWA retiree benefit plans. See RC Ex. 192. American further agreed to provide TWA employees who joined American with retiree benefits “no less favorable” than those benefits provided to American's own employees. RC Ex. 25 at 216–17 (Ex. K, § 10.1).

Prior to the closing of the sale, TWA filed a motion pursuant to Section 1114 seeking to substitute its own obligations with respect to retiree benefits with those that American contracted to assume under the TWA Purchase Agreement. The TWA...