In re Chateaugay Corp.

• Decision Date: 14 May 1992
• Docket Number: No. 91 Civ. 7182 (MBM).,91 Civ. 7182 (MBM).
• Citation: 140 BR 64
• Parties: In re CHATEAUGAY CORPORATION, Reomar, Inc., the LTV Corporation, et al., Debtors. Mrs. Walter STONER, Oliver Dunn, Jane Smith and John Doe, on behalf of themselves and all others similarly situated, Appellants, v. The LTV CORPORATION and LTV Steel Company, Inc., Appellees.
• Court: U.S. District Court — Southern District of New York

140 B.R. 64 (1992)

In re CHATEAUGAY CORPORATION, Reomar, Inc., the LTV Corporation, et al., Debtors Mrs. Walter STONER, Oliver Dunn, Jane Smith and John Doe, on behalf of themselves and all others similarly situated, Appellants, v. The LTV CORPORATION and LTV Steel Company, Inc., Appellees.

No. 91 Civ. 7182 (MBM).

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

May 14, 1992.

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Charles T. Riehl, Perry B. Newman, Walter, Haverfield, Buescher & Chockley, Cleveland, Ohio, Jay R. Indyke, Eric Haber, Siegel, Sommers & Schwartz, New York City, for appellants.

Karen E. Wagner, Ivor Wolk, Davis, Polk & Wardwell, Herbert S. Edelman, Kaye, Scholer, Fierman, Hays & Handler, New York City, for debtors and debtors in possession.

Brian M. Cogan, Lawrence M. Handelsman, Mark S. Wintner, Mark A. Speiser, Nancy A. Markhoff, Stroock & Stroock & Lavan, New York City, for the Committee of Unsecured Creditors of LTV Steel, Inc.

OPINION AND ORDER

MUKASEY, District Judge.

Appellants, retired former salaried employees of the LTV Steel Company, filed this adversary proceeding to challenge modifications in certain retiree health and welfare benefits. They appeal from an order of the United States Bankruptcy Court for the Southern District of New York (Lifland, C.J.), dismissing the complaint for failure to state a claim and denying their motion for class certification. For the reasons set forth below, the order of the bankruptcy court is reversed, and the case remanded.

I.

Appellees are the LTV Corporation, a holding company, and the LTV Steel Company, which after acquisition of Republic Steel in 1984 became the nation's second largest steel producer (collectively "LTV"). On July 17, 1986, appellees, along with 65 other LTV Corporation subsidiaries and affiliates, filed petitions for reorganization pursuant to Chapter 11 of Title 11 of the United States Code ("Bankruptcy Code"). See In re Chateaugay Corp., 961 F.2d 378, 379 (2d Cir.1992). Since the filing date, the debtors have continued to manage and operate their respective businesses as debtors-in-possession, pursuant to §§ 1107 and 1108 of the Bankruptcy Code.

Burdened with mismanaged and under-funded pension and benefit liabilities, one of LTV's acknowledged objectives in declaring bankruptcy was the restructuring of its employee benefit plans. See Pension Benefit Guaranty Corp. v. LTV Corp., 496 U.S. 633, 640, 110 S.Ct. 2668, 2673, 110 L.Ed.2d 579 (1990). Thus, upon filing, the debtors-in-possession terminated the life and health insurance benefits of their approximately 78,000 retirees. This unprecedented move provoked an angry response from both organized labor and the general public. See LTV Cut `In Flat Violation', Chicago Tribune, July 29, 1986 at sec. C, pg. 1. The United Steelworkers of America ("USWA") immediately protested the termination by striking LTV mills in Illinois and Ohio and threatening strikes elsewhere. See James Risen, Steel Industry's Woes Mount, L.A. Times, July 31, 1986 at pt. 4, pg. 1. LTV Steel, already in financial distress and suffering further losses as a result of the USWA action, was forced to petition to resume retiree benefit payments; by Order dated July 30, 1986, the bankruptcy court authorized the limited reinstatement of certain retiree benefits.

Congress also reacted to the termination. On October 18, 1986, Section 608 of Public Law 99-591 ("Section 608"), was enacted to prohibit temporarily the unilateral termination of any plan established for the purpose of providing retiree health and life insurance benefits.¹See Rouse Joint Resolution Making Continuing Appropriations for the Fiscal Year 1987, and For Other Purposes, Title VI, § 608, Pub.L. No. 99-591, 100 Stat. 3341-74 (1986). Congress twice amended this stop-gap provision so that it would remain in effect until October 15, 1987. See Pub.L. No. 100-99, 101 Stat. 716 (1987); Pub.L. No. 100-41, 101 Stat. 309 (1987).

In July 1987, while the stop-gap legislation was still in force, the debtors-in-possession moved for an order approving a new collective bargaining agreement with the USWA. The proposed agreement modified a broad spectrum of employee and retiree benefits, and included a new cost-sharing arrangement for retired former USWA employees (hereinafter "hourly retirees" or "union retirees") whereby the union retirees were to contribute $26.82 per month toward the cost of health insurance. (July 8, 1987 App. at 10) According to the debtors-in-possession, the new collective bargaining agreement would promote labor peace, generate an annual savings to LTV Steel of approximately $50 million, and govern the relationship between the debtors-in-possession and the USWA until reorganization was confirmed. (Id. at 8) Along with its application for approval of the USWA agreement, LTV Steel also applied for approval of a plan to limit certain health and life insurance benefits paid to retired former non-union employees (hereinafter "salaried retirees" or "non-union retirees"). (Id. at 14-15)

The Republic Steel Salaried Retirees' Association ("RSSRA"), a member of the official unsecured creditors' committee, objected to the proposed order. Organized as an Ohio not-for-profit corporation, RSSRA is charged with representing in the bankruptcy proceeding the interests of the approximately 8,000 Republic Steel salaried retirees.² In its objection, RSSRA stated:

The Association believes that LTV Steel does not have the right to unilaterally modify or terminate any type of retiree benefits. Consequently, nothing contained in this pleading should be construed as a waiver of any of the retirees\' rights. . . . The Association objects to any unilateral termination or modification of retiree benefits; furthermore, the Association requests that LTV Steel immediately begin consultation with the Association with respect to said retiree benefits.³

(July 13, 1987 Res. at 3)

By Order dated July 30, 1987, the bankruptcy court authorized LTV Steel to enter the USWA agreement and modify the salaried retirees' benefits. Despite that approval, the benefit modifications were not immediately implemented because the salaried retirees were still under the protection of Section 608. RSSRA did not appeal the Order.

On October 16, 1987, the day after the stop-gap legislation expired, the debtors-in-possession implemented the modifications approved in the July 30 Order. The new program no longer based death benefits on a percentage of salary at retirement; instead, it provided a maximum of $20,000 face value of life insurance until age 66, declining to $5,000 thereafter. (July 8, 1987 App. at 15) In addition, appellees allegedly reduced the salaried retirees' health insurance benefits and increased the premiums for such benefits. (Compl. ¶ 11)

On June 16, 1988, the long-awaited Retiree Benefits Bankruptcy Protection Act of 1988 ("Benefits Protection Act") was enacted. Pub.L. No. 100-334, 102 Stat. 610 (1988). The Benefits Protection Act added to the Bankruptcy Code a set of procedures, partially codified at 11 U.S.C. § 1114, which must be followed by debtors seeking to reduce or terminate certain retiree benefits. Section 1114 requires, inter alia, that the court appoint a retirees' committee which, by order of the bankruptcy court, serves as the retirees' authorized bargaining representative in benefit negotiations. In addition, although the stop-gap provision technically had expired as of October 15, 1987, Congress included amendments to Section 608 in the Benefits Protection Act. The retroactive effect of these amendments is the central issue in dispute. (See II, infra)

On October 6, 1988, RSSRA moved for appointment of an official salaried retirees' committee to consist of RSSRA representatives. (October 6, 1988 App. at 8-9; November 30, 1988 Tr. at 7-8) At oral argument in the bankruptcy court, counsel for RSSRA stated that one reason for appointment of that committee would be to allow it to "take into account . . . what we would envision to be a prior modification in October of 1987" and "what in effect has been we consider a reviver of stopgap legislation and that fact upon the modification of life insurance issues." (November 30, 1988 Tr. at 26) However, RSSRA did not challenge the October 16, 1987 modifications directly. In denying the application, the bankruptcy court cited the costly proliferation of committees and RSSRA's ability to be heard via the unsecured creditors' committee. (Id. at 26-30; November 30, 1988 Order)

On March 9, 1990, LTV Steel sought authorization to make certain payments pursuant to an interim collective bargaining agreement reached with hourly employees and retirees. The interim agreement was entered, according to LTV, because collective bargaining agreements reached between the USWA and several of LTV Steel's leading competitors were undermining "labor peace." The proposed agreement restored earlier wage concessions and improved benefits for hourly retirees; one such improvement was a limit on monthly contributions toward health insurance premiums. (March 9, 1990 App. at 3) RSSRA objected:

LTV Steel proposes to eliminate the $26.82 monthly health care insurance premium paid by USWA retirees, effective May 1, 1990. This proposal will cost LTV Steel some $11.5 million annually and will provide obvious relief to USWA retirees living on fixed incomes.

LTV Steel\'s laudable concern for retirees is apparently limited to its USWA retirees, however, since LTV Steel has made no provision or expressed any intention to provide corresponding benefit improvements for Association retirees. At the very least, LTV Steel could have proportioned the proposed premium savings across the entire spectrum of retirees paying such premiums, rather than affording this crucial break to a fraction of all those affected.

(March 15, 1990 Obj. at 3-4; see also March 19, 1990 Tr. at 44) In objecting, RSSRA did not challenge the October 1987...