In re Chateaugay Corp.
| Decision Date | 13 September 1991 |
| Docket Number | No. 89 Civ. 6012 (KTD),90 Civ. 6048 (KTD).,89 Civ. 6012 (KTD) |
| Citation | 130 BR 690 |
| Parties | In re CHATEAUGAY CORPORATION, Reomar, Inc., the LTV Corporation, et al., Debtors. The LTV CORPORATION, for itself and on behalf of all affiliated debtors in these cases; the Official Committee of Unsecured Creditors of LTV Steel Company, Inc.; the Official Committee of Parent Creditors of the LTV Corporation; the Official Committee of Equity Security Holders; and the LTV Bank Group, Plaintiffs, v. PENSION BENEFIT GUARANTY CORPORATION, Defendant. The LTV CORPORATION, LTV Steel Company, Inc., Plaintiffs, v. Elizabeth DOLE, Secretary of the United States Department of Labor, Defendant. |
| Court | U.S. District Court — Southern District of New York |
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Blank, Rome, Comisky & McCauley, Philadelphia, Pa. (Arnold I. Kalman, Raymond L. Shapiro, Thomas E. Biron, William E. Taylor, III, Faith Greenfield, of counsel), for the Parent Creditors' Committee of The LTV Corp.
Cleary Gottlieb Steen & Hamilton (George Weisz, of counsel), Otterbourg, Steindler, Houston & Rosen, P.C., (William M. Silverman, of counsel), New York City, for defendant Pension Ben. Guar. Corp.
Davis Polk & Wardwell (Karen E. Wagner, of counsel), Kaye, Scholer, Fierman, Hays & Handler (Michael J. Crames, of counsel), New York City, Leboeuf, Lamb, Leiby & Macrae, Washington, D.C. (Frank Cummings, of counsel), for The LTV Corp. and The LTV Steel Co., Inc. Harold Jones, U.S. Trustee, New York City.
O'Melveny & Myers, New York City (Robert M. Hayes, Joel B. Zweibel, of counsel), for The LTV Bank Group.
Pension Benefit Guaranty Corporation, Washington, D.C. (Carol Connor Flowe, Jeanne K. Beck, William G. Beyer, Paula J. Connelly, of counsel).
U.S. Dept. of Labor, Washington, D.C. (Cynthia Caldwell Weglicki, Robert P. Davis, Sol. of Labor, Marc I. Machiz, Associate Solicitor, P.B.S.D., Sherwin Kaplan, counsel for Fiduciary Litigation, of counsel).
Strook & Strook & Lavan (Brian Cogen, Lawrence M. Handelsman, of counsel), Warshaw Burstein Cohen Schlesinger & Kuh, New York City (Edgar H. Booth, Martin R. Lee, Mary S. Zitwer, Thomas A. Draghi, of counsel), for plaintiff the Official Committee of the Equity Sec. Holders.
Beginning in the early 1950's, major corporations began funding employee pensions plans. Trustees no longer required that funds be invested in employer corporations and diversified investments assuring the safest and most efficient use of the funds in order to earn benefit monies ultimately paid to employees upon retirement. These pension funds became major players in the financial marketplace, but even so, with an aging workforce, smart investment policy did not necessarily cover the benefits to be paid, particularly in those cases where funding by the employer is still incomplete.
Congress and the President, spreading a federal safety net in order to protect retiree benefits, enacted the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. §§ 1001 et seq. Formation of the Pension Benefit Guarantee Corporation ("PBGC") was established thereunder; it was developed, among other reasons, to rescue underfunded pension plans of bankrupt corporations. ERISA guarantees payment of pensions to retirees and employees of corporations which fail or become bankrupt leaving incompletely funded pension plans, causing them to be terminated. In order for such terminated funds to make good on shortfalls, money is generated by: "insurance premiums," exacted from all pension funds, "charge-backs" assessed against defunct or bankrupt employers and officers, and as a last resort, a "call" on the United States Treasury. See 29 U.S.C. § 1305.
This case revolves around the bankruptcy of plaintiff Chateaugay Corporation, Reomar, Inc. and the LTV corporation (collectively "LTV"), a major nation wide conglomerate, the pension plans of which are not completely funded. The case is difficult and important because it involves fundamental questions of valuation, procedure, and methodology. Complicating matters further is the fact that such procedures have never before been decided in connection with a major bankruptcy where practically every possible type of interest is present. The resolution of these issues is of grave concern not only to the parties involved here but potentially to the national economy.1
On July 17, 1986, LTV and its sixty six subsidiary organizations, filed for reorganization in bankruptcy. On November 24, 1987, PBGC filed proofs of claim against LTV, after which LTV filed an adversarial proceeding in the bankruptcy court, objecting to PBGC's September 13, 1989 claims. LTV v. PBGC, No. 89-6122A.2 I withdrew the reference from the Bankruptcy Court on October 17, 1989, but, in acknowledgement of Judge Lifland's familiarity with the issues and the parties, the matter was referred to him for findings pursuant to 28 U.S.C. § 157(c)(1), subject to my de novo review. Defendants PBGC and the Department of Labor (the "DOL") now seek review of Judge Lifland's Report and Recommendation.
Specifically, by Recommended Decision dated May 24, 1990, the Bankruptcy Court advised that: (1) federal bankruptcy law is determinative of the discount rate to be applied in calculating the present value of PBGC's claims; (2) post-petition termination of pension plans did not entitle PBGC's claims to administrative status; (3) post-petition termination of pension plans did not entitle PBGC's claims to tax or lien status; (4) PBGC must give effect to certain limits imposed by 29 U.S.C. § 1362(b) (1986); (5) PBGC is entitled to a single, non-duplicative recovery; (6) PBGC's priority claims must be set off by payments made by LTV; and (7) PBGC's trust claims, pursuant to 29 U.S.C. § 1349 (1986), must be expunged. Both PBGC and the DOL also move pursuant to Fed.R.Civ.P. 12(b)(6) for judgment on the pleadings, dismissing paragraphs 14, 15 and 17 of LTV's complaint. Additionally, LTV moves for a declaratory judgment which would include rulings that: (1) any DOL claims arising from the LTV pension plan obligations are pre-petition claims and are therefore not entitled to priority; (2) payment of such claims may only be made pursuant to a plan of reorganization; and (3) the DOL may not compel payment of LTV's pension plan obligations.3
LTV and its affiliates are principally engaged in the steel, aerospace/defense and energy products industries. LTV Steel Company, Inc. is one the country's largest steelmakers as a result of its acquisition of the Republic Steel Corporation in June of 1984, and the subsequent merger of an LTV subsidiary corporation, J & L Steel, with the LTV Steel Company, Inc. PBGC is a corporation owned by the United States government which administers the pension plan termination insurance program.
LTV filed petitions for relief under Chapter 11 of the Bankruptcy Code on July 17, 1986, in part because of the difficulty in maintaining its pension plan obligations in an increasingly competitive steel industry. 11 U.S.C. §§ 101 et seq. (1979 & Supp.1991). At the time that LTV filed for bankruptcy, it was the sponsor of at least the four pension plans in question here.4 The pension plans have a wide range of benefits including those for medical and dental care, contributions to savings plans, and profit sharing. Since the time that LTV filed for bankruptcy, it has continued to operate its businesses as debtor in possession pursuant to 11 U.S.C. §§ 1107 and 1108.
On September 30, 1986, and January 12, 1987, PBGC moved before this court to terminate the plans after LTV filed for reorganization in bankruptcy. LTV consented to each of the terminations. Pursuant to the Bankruptcy Court's orders, LTV has been paying approximately 92% of the benefits for current retirees.5 Subsequently, PBGC attempted to administratively restore three of the four pension plans.6 This restoration was ultimately permitted. In re Chateaugay Corp., 87 B.R. 779 (S.D.N.Y.1988), aff'd sub nom., Pension Ben. Guaranty Corp. v. LTV Corp., 875 F.2d 1008 (2d Cir.1989), rev'd, ___ U.S. ___, 110 S.Ct. 2668, 110 L.Ed.2d 579 (1990), on remand, 122 B.R. 863 (S.D.N.Y.1990).
While the above restoration action was sub judice in the United States Supreme Court, PBGC took over the assets and liabilities of the pension plans, which were sponsored and administered by related debtors in the LTV bankruptcy proceeding. PBGC filed numerous claims of liability for pension plan obligations.
The parties are in agreement that there are no issues of material fact which would prevent the court from disposing of the issues at bar.7 See Quinn v. Syracuse Model Neighborhood Corp., 613 F.2d 438, 444 (2d Cir.1980) ().
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"), 29 U.S.C. § 1302 (1982 & Supp.1986)8, governs both ongoing and terminated pension plans. Under Titles I and IV of ERISA, the DOL enforces the funding requirements for ongoing pension plans. 29 U.S.C. §§ 1132(a)(5) and 1132(b)(1). Section 4002 of ERISA establishes the PBGC, a wholly-owned United States Government corporation, created to administer a pension plan termination insurance program. See 29 U.S.C. §§ 1301-1461.
Single employer pension plans may be involuntarily terminated by the PBGC for, among other reasons, inability by the participant to fund its employee benefits programs. 29 U.S.C. § 1342. Here, the pension plans were involuntarily terminated. When a pension plan covered by Title IV of ERISA terminates without sufficient funds, PBGC takes over the assets and liabilities of the plan and makes up any deficiency in plan assets from its own funds. PBGC funds are drawn from the annual insurance premiums paid by administrators of covered plans as well as employer liability...
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