Boivin v. U.S. Airways, Inc., 05-5165.

• Decision Date: 02 May 2006
• Docket Number: No. 05-5165.,05-5165.
• Parties: Charles BOIVIN, et al., Appellants v. U.S. AIRWAYS, INC., et al., Appellees.
• Court: U.S. Court of Appeals — District of Columbia Circuit

446 F.3d 148

Charles BOIVIN, et al., Appellants v. U.S. AIRWAYS, INC., et al., Appellees.

No. 05-5165.

United States Court of Appeals, District of Columbia Circuit.

Argued March 14, 2006.

Decided May 2, 2006.

Appeal from the United States District Court for the District of Columbia (No. 03cv02373jr).

Sara R. Pikofsky argued the cause for appellants. With her on the briefs was Sherwin Kaplan.

Garth D. Wilson, Attorney, Pension Benefit Guaranty Corporation (PBGC), argued the cause for appellee PBGC. With him on the brief were Jeffrey B. Cohen, Chief Counsel, Nancy S. Heermans, Associate Chief Counsel, Paula J. Connelly, Assistant Chief Counsel, and Beth A. Bangert, Jean Marie Breen, and Sandra A. Garrick, Attorneys.

Before: HENDERSON and GARLAND, Circuit Judges, and EDWARDS, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge GARLAND.

GARLAND, Circuit Judge.

Retired U.S. Airways pilots brought suit against the Pension Benefit Guaranty Corporation ("PBGC" or "Corporation"), seeking to compel the PBGC to correct alleged errors in its calculation of estimated benefits due the pilots under the Employee Retirement Income Security Act of 1974 ("ERISA") and the U.S. Airways' Pilots' Retirement Income Plan. The pilots contend that, in failing to correct those errors, the PBGC breached its obligations both as fiduciary and as agency-guarantor. Without reaching the merits, we conclude that the claims against the PBGC must be dismissed because the pilots have not yet exhausted their administrative remedies.

I

On August 11, 2002, U.S. Airways Group, Inc. and seven subsidiaries (collectively, "U.S.Airways") filed voluntary petitions in the Bankruptcy Court for the Eastern District of Virginia, seeking reorganization relief under Chapter 11 of the Bankruptcy Code, 11 U.S.C. § 1101, et seq. On January 30, 2003, U.S. Airways filed with the PBGC a notice of its intent to terminate its Pilots' Retirement Income Plan, a defined-benefit pension plan, citing "a serious funding shortfall." In re U.S. Airways Group, Inc., 296 B.R. 734, 738 (Bankr.E.D.Va.2003). U.S. Airways simultaneously filed a motion in the bankruptcy court for the judicial findings required by ERISA to permit a distress termination of the Plan. See 29 U.S.C. § 1341(c)(2)(B)(ii)(IV).

The bankruptcy court subsequently granted the motion, finding that "unless the Plan is terminated, the debtors will be unable to pay all of their debts pursuant to a plan of reorganization and will be unable to continue in business outside the chapter 11 reorganization process." In re U.S. Airways Group, Inc., No. 02-83984, Order at 1 (Bankr.E.D.Va. Mar. 2, 2003) (citing 29 U.S.C. § 1341(c)(2)(B)(ii)(IV)). After U.S. Airways gained the consent of the pilots' union to terminate the Plan, see 29 U.S.C. § 1341(a)(3), the company entered into an agreement with the PBGC setting March 31, 2003 as the Plan's termination date.

Prior to the termination date, U.S. Airways, as the pre-termination plan administrator, was responsible for revising benefit payments under the Plan from then-current levels to what it estimated would be the amount of benefits that would be covered by Plan assets or guaranteed by the PBGC following termination. See 29 U.S.C. § 1341(c)(3)(D)(ii)(IV); 29 C.F.R. § 4041.42(c). Revised benefit calculations are governed by ERISA and PBGC regulations. See 29 U.S.C. §§ 1322, 1344(a); 29 C.F.R. § 4022.61-.63. U.S. Airways completed these determinations and informed Plan participants of their estimated post-termination benefits by letters dated March 28, 2003. See Boivin v. U.S. Airways, Inc., 297 F.Supp.2d 110, 113 (D.D.C.2003).

The PBGC — created pursuant to Title IV of ERISA — is a U.S. government corporation within the Department of Labor that insures private-sector defined-benefit pension plans. See 29 U.S.C. § 1302. Sponsors of such plans pay premiums to the PBGC, and the Corporation acts as a statutory guarantor, paying benefits to participants of underfunded terminated plans subject to statutory limits. See id. §§ 1307, 1322. When an underfunded plan is terminated, a successor trustee is appointed to administer the plan and to assume responsibility for its assets. ERISA permits, but does not require, the PBGC to be appointed as the successor trustee. See id. § 1342(b). In practice, the PBGC has always applied to serve as successor trustee for distress-terminated defined-benefit plans, and the courts have invariably granted its applications. See Pineiro v. PBGC, 318 F.Supp.2d 67, 72 (S.D.N.Y. 2003). Following this well-worn path, the PBGC applied to serve as successor trustee of the U.S. Airways Plan, and its application was granted.

When the U.S. Airways Plan terminated on March 31, 2003, the PBGC began paying estimated benefits. At that point, the PBGC had not yet made its formal determination of each participant's post-termination benefits, and it still has not done so. The parties do not dispute that the PBGC normally requires two to three years from the date it takes over a plan to issue a formal benefit determination to each plan participant. See Boivin, 297 F.Supp.2d at 114; Decl. of Candace Campbell ¶ 15 (Nov. 24, 2003). Once final benefit determinations are made, the PBGC either repays any shortfall in the amount of the participants' interim benefits, with interest, or seeks to recoup any surplus. See 29 C.F.R. § 4022.81-.83.

On November 17, 2003, without waiting for the PBGC to complete its final determinations, the plaintiffs filed suit against the PBGC and U.S. Airways. The gravamen of their complaint was that "the estimated benefit calculations [were] incorrectly low as to them, and that waiting two to three years for a formal benefit determination would cause them great hardship." Boivin, 297 F.Supp.2d at 115. They alleged four primary errors in the calculation of estimated benefits: (1) incorrect determination of the effective date of an amendment to the U.S. Airways Plan concerning early retirees; (2) improper consideration of previously paid partial lump-sum benefits in calculating prospective monthly annuities; (3) underpayment of benefits to retirees over the age of 65, based upon the PBGC's statutory guaranty levels; and (4) underpayment of benefits to other retirees, based on the "PBGC's application of an artificially low funding percentage in calculating benefits," Appellants' Br. 2. The plaintiffs contended that the PBGC breached its duties, both as a fiduciary and as a federal agency-guarantor, by failing to correct the asserted errors in its calculation of estimated benefits. See Am. Compl. ¶¶ 81-89.

The plaintiffs' claims against U.S. Airways were stayed as a consequence of the airline's bankruptcy filing. See 11 U.S.C. § 362(a); Boivin v. U.S. Airways, Inc., No. 03-2373, Order at 1, 2005 WL 713622 (D.D.C. March 17, 2005). On December 19, 2003, the district court denied a motion for a preliminary injunction against the PBGC. In the months that followed, the PBGC took action to remedy two of the four errors alleged by the pilots. First, it corrected the benefit payments for retirees over the age of 65 by increasing their benefits from 85 to 100 percent of their pre-termination levels. Second, it corrected payments for other retirees by raising their benefits from 85 to 98 percent of their pre-termination levels. The PBGC took no action as to the other two alleged errors.

On March 17, 2005, after hearing motions filed by both sides, the district court issued an order granting summary judgment for the PBGC on the plaintiffs' fiduciary duty claims, holding that there was no evidence that the Corporation had breached any fiduciary obligation in calculating estimated benefits. See Boivin v. U.S. Airways, Inc., No. 03-2373, Mem. Op. at 3-4, 2005 WL 713622 (D.D.C. Mar. 17, 2005). It dismissed for failure to state a claim the plaintiffs' allegations against the PBGC as agency-guarantor, on the ground that the plaintiffs had failed to exhaust their administrative remedies. Id. at 4-5, 2005 WL 713622. At the plaintiffs' request, the court then entered final judgment pursuant to Federal Rule of Civil Procedure 54(b).

II

As noted above, the pilots' complaint alleged that the PBGC had committed four errors in calculating their estimated benefits. The pilots agree that the PBGC has since corrected two of those errors — relating to the percentage of payments made to retirees — and that only two alleged errors remain for our consideration on this appeal: (1) incorrect determination of the effective date of an amendment to the U.S. Airways Plan concerning early retirees; and (2) improper consideration of previously paid partial lump-sum benefits in calculating prospective monthly annuities. See Appellants' Br. 2, 5-7; Reply Br. 19.

The first remaining allegation concerns benefit reductions made by the PBGC based on its view that an amendment to the Plan, which enhanced benefits for certain early retirees, had become effective less than 60 months before the Plan terminated. ERISA provides that amendments "resulting from a plan amendment which was made, or became effective, whichever is later," less than 60 months before termination may not be fully credited. 29 U.S.C. § 1322(b)(1)(B).¹ The parties appear to agree that the amendment at issue here was "made" on December 4, 1997, the date it was adopted. See Appellants' Br. 30; PBGC's Opp'n to Pl.'s Supplemental Mem. in Supp. of its Mot. for Partial Summ. J. at 5. The dispute, therefore, is over when the amendment "became effective."

The plaintiffs contend that, because correspondence setting forth the amendment stated that U.S. Airways would offer the enhancement "effective as of the effective date of the new Collective Bargaining Agreement" with the pilots' union, Early Retirement Incentive Program, J.A. at 107, and because the Agreement became effective on January 1, 1998, that date is the operative date. They further contend that, because January 1, 1998 was more than 60...