In re Chateaugay Corp.
| Decision Date | 22 June 1988 |
| Docket Number | No. 87 Civ. 6863 (RWS),87 Civ. 7261 (RWS).,87 Civ. 6863 (RWS) |
| Citation | 87 BR 779 |
| Parties | In re CHATEAUGAY CORPORATION, Reomar, Inc., the LTV Corporation, et al., Debtors. PENSION BENEFIT GUARANTY CORPORATION, Petitioner, v. The LTV CORPORATION, et al., Respondents. PENSION BENEFIT GUARANTY CORPORATION, Plaintiff, v. The LTV CORPORATION, and LTV Steel Company, Inc., Defendants. |
| Court | U.S. District Court — Southern District of New York |
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Pension Ben. Guar. Corp., Washington, D.C. (Gary M. Ford, Gen. Counsel, Carol Connor Flowe, Deputy Gen. Counsel, Lonie Hassel, Asst. Gen. Counsel, William G. Beyer, Associate Gen. Counsel, Frank McCulloch, Sr. Counsel, Jeanne K. Beck, James J. Armbruster, John Foster and Paula Connelly, of counsel), and Cleary, Gottlieb, Steen & Hamilton, New York City (George Weisz, of counsel), for plaintiff.
Davis, Polk & Wardwell, New York City (Lewis B. Kaden, Karen E. Wagner, Sharon Katz, James Goddard, Douglas Brandon and Joan Greco, of counsel), Levin & Weintraub & Crames, New York City (Michael J. Crames and Herbert S. Edelman, of counsel), and Leboeuf, Lamb, Leiby & Macrae, Washington, D.C. (Frank Cummings, of counsel), for defendants LTV Corp., et al.
Kramer, Levin, Nessen, Kamin & Frankel, New York City (Joel B. Zweibel, Geoffrey M. Kalmus, Michael J. Nassau, Michael J. Dell, Peter V. Pantaleo, Alice A. Thompson, Jeffrey S. Trachtman and Nancy J. Mrazek, of counsel), for LTV Bank Group.
Stroock & Stroock & Lavan, New York City (Lawrence M. Handelsman, Mark A. Speiser, Brian M. Cogan, Lauren G. Klein and Barry M. Sabin, of counsel), for Official Committee of Unsecured Creditors of LTV Corp.
Blank, Rome, Comisky & McCauley, Philadelphia, Pa. (Raymond L. Shapiro, Morris L. Weisberg, Thomas E. Biron, Faith R. Greenfield and Regina Stango Kelbon, of
counsel), for Subcommittee of Parent Creditors of the Official Committee of Unsecured Creditors of LTV Corp.
Graydon, Head & Ritchey, Cincinnati, Ohio (Eric C. Okerson and Margaret Weingartner Burgin, of counsel), for the Fifth Third Bank.
Hahn Loeser & Parks, Cleveland, Ohio (Lee D. Powar and Lawrence E. Oscar, of counsel), for Huntington Nat. Bank.
Shearman & Sterling, New York City (David J. Mark, of counsel), for Citibank, N.A.
Myerson & Kuhn, New York City (Edgar H. Booth, Claude D. Montgomery, Peter D. Wolfson, Richard Levy, Jr., Janet Shprintz and Sara Chenetz, of counsel), for Official Committee of Equity Security Holders of LTV Corp. and LTV Steel Co., Inc.
Buchanan Ingersoll, P.C., Pittsburgh, Pa. (R.A. King and Kenneth R. Bruce, of counsel), and Mound, Cotton & Wollan, New York City (Stuart Cotton, of counsel), for David H. Miller and William H. Shaffer.
Haynes and Boone, Dallas, Tex. (Robin E. Phelan and Mark X. Mullin, of counsel), for BancTexas Dallas, N.A.
Cohen, Weiss and Simon, New York City (Bruce H. Simon, Richard M. Seltzer and Sophia E. Davis, of counsel), amicus curiae for United Steelworkers of America.
Northeast Ohio Legal Services, Youngstown, Ohio (Staughton Lynd, of counsel), amicus curiae for Solidarity USA, Inc.
Legal Services for the Elderly, New York City (Jonathan A. Weiss, of counsel), amicus curiae for Solidarity USA, Inc.
TABLE OF CONTENTS
Facts..........................................____
LTV's Financial Difficulties and
Chapter 11 Filing ...........................____
The 1986 Collective Bargaining
Agreement ...................................____
The PBGC and Title IV of ERISA.............____
The PBGC's Involuntary Termination
of the Plans ................................____
The USWA Lawsuit for Non-Guaranteed
Benefits ....................................____
The 1987 Interim Collective Bargaining
Agreement ...................................____
Court Approval of the 1987 CBA ............____
The Restoration of the Plans ..............____
The Notice of Restoration .................____
Prior Proceedings in this Court ...............____
The Stay Application ..........................____
I. The Automatic Stay .....................____
II. The Nature of the PBGC's
Claims................................____
III. Restoration Does Not Violate
the Automatic Stay....................____
IV. Section 362(b)(4) of the Code
Exempts Restoration ..................____
The Enforcement Action........................____
V. The Scope of Review.....................____
VI. The PBGC's Restoration Authority........____
VII. The Restoration Decision was
Arbitrary and Capricious .............____
A. The 1987 CBA Plans ..................____
B. LTV Steel's Improved Financial
Condition...........................____
VIII. The PBGC's Procedures Were
Inadequate ............................____
Conclusion.....................................____
The Pension Benefit Guaranty Corporation ("PBGC") has moved pursuant to Fed. R.Civ.P. 56 for an order granting summary judgment directing the LTV Corporation ("LTV") and LTV Steel Company ("LTV Steel") to comply with the PBGC's Notice of Restoration ("Restoration Notice") dated September 22, 1987 and to resume full responsibility for funding and administering three of LTV Steel's four major pension plans, which were terminated on January 12, 1987. LTV, for itself and on behalf of the other debtors and debtors-in-possession in these cases, has moved for an order decreeing and adjudging that the PBGC acted in violation of the automatic stay of section 362 of the Bankruptcy Code (the "Code") and a restraining order of the Bankruptcy Court by issuing the Restoration Notice and thereafter commencing an action to enforce it.
These motions in the context of the facts presented raise difficult and deeply perplexing issues concerning the reorganization of a corporate entity that includes the second largest steel company in the United States, the powers of a public corporation created by Congress to protect the pension benefits of more than 30 million American workers and their families, and the effect of congressionally sanctioned collective bargaining between the United Steelworkers of America ("USWA") and LTV. Underlying these issues is the fundamental question: what processes and institutions are to be responsible for the casualties suffered by a basic American industry that has been battered by intensive and successful competition from abroad?
No central authority in this litigation has spoken to this bedrock problem. No U.S.A., Inc. has been heard, or even exists. The issues have, therefore, necessarily been parsed in terms of the existing body of bankruptcy, labor and pension benefit law, largely created before the present exigencies existed. The threshold resolution of these competing considerations is, indeed, a daunting task but one assisted by excellence of counsel who have striven with some success to order these complexities. Whatever follows on remand, review or in the halls of Congress, it is this court's initial obligation to find the facts and to reach conclusions by the application of established analysis, where it exists, leading hopefully to the earliest possible resolution of the interests at issue.
The court has reached the following conclusions. First, with respect to the automatic stay, although the PBGC's claims against LTV Steel under Title IV are prepetition claims, restoration per se does not effect a recovery on those claims or in any other way constitute an act to possess or to control LTV Steel's assets. Restoration is simply one regulatory component of the federal pension insurance program that protects the nation's employees, and nothing in the Code or in ERISA justifies a debtor's reliance on that program except in cases of severe hardship. Second, with respect to the restoration decision itself, the 1,592 page Administrative Record (the "PBGC Record" or "Record") submitted by the PBGC in this case does not support the PBGC's decision to restore the Plans on any of the asserted grounds. There is no factual or legal basis for the PBGC's finding that LTV has abused the pension termination insurance program, and the record is not sufficiently developed to permit a finding that LTV Steel's financial condition has improved to the point where it can afford to sponsor its previously terminated plans.
Therefore, LTV's application to enforce the automatic stay by declaring restoration null and void is denied, as is the PBGC's motion for summary judgment. These findings and conclusions are described in the following portions of this opinion which set forth the context of the litigation, its prior proceedings, the issues raised, the resolution of the issues, and the conclusions reached at this stage of the litigation.
LTV is a Delaware corporation active in four basic industries: steel, aircraft products, missiles and electronics and energy products. LTV's subsidiaries include LTV Aerospace and Defense Company, AM General Corporation, LTV Energy Products Company and LTV Steel, the nation's second largest steel operation, which was created by the merger of Jones & Laughlin Steel Company, Youngstown Sheet & Tube Company and Republic Steel Corporation.
Directly and through its subsidiaries, LTV has administered approximately thirty defined benefit pension plans, including the three plans at issue here:1 the Jones & Laughlin Hourly Pension Plan ("J & L Hourly Plan"); the Jones & Laughlin Retirement Plan ("J & L Salaried Plan"); and the Pension Plan of Republic Steel Corporation Dated and Effective as of March 1, 1950 ("Republic Hourly Plan") (collectively the "Plans"). The Plans are covered by the Employee Retirement Income Security Act of 1974 ("ERISA"), as amended by the Single-Employer Pension Plan Amendment Act of 1986 ("SEPPAA")2, 29 U.S.C. §§ 1301 et...
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