In re Kaiser Aluminum Corp.
| Decision Date | 26 July 2006 |
| Docket Number | No. 05-2695.,05-2695. |
| Citation | 456 F.3d 328 |
| Parties | In re KAISER ALUMINUM CORPORATION, Debtor. Pension Benefit Guaranty Corporation, Appellant. |
| Court | U.S. Court of Appeals — Third Circuit |
M. Gordon, [Argued], Daniel P. Winikka, Dallas, TX, for Appellees.
Before RENDELL, SMITH and ALDISERT, Circuit Judges.
The Employee Retirement Income Security Act of 1974 ("ERISA") permits an employer seeking reorganization in Chapter 11 bankruptcy to terminate a pension plan if the employer satisfies certain notice requirements and demonstrates to a bankruptcy court that it will be unable to pay its debts and continue in business outside of Chapter 11 unless the pension plan is terminated. ERISA § 4041(c)(2)(B)(ii)(IV), 29 U.S.C. § 1341(c)(2)(B)(ii)(IV) (2000). Courts typically refer to this requirement for a plan termination as the "reorganization test." The instant case raises a question of first impression among the courts of appeals: when a Chapter 11 debtor seeks to terminate multiple pension plans simultaneously under the reorganization test, should a court apply the test to each plan independently, or to all of the plans in the aggregate?
Kaiser Aluminum Corporation and twenty-five of its affiliates ("Kaiser") are debtors in a Chapter 11 bankruptcy. As part of their reorganization, they requested that the Bankruptcy Court approve the termination of six pension plans under the reorganization test. The Bankruptcy Court applied the test to all six plans in the aggregate and concluded that their termination was required for Kaiser to emerge from Chapter 11. The Pension Benefit Guaranty Corporation ("PBGC"), which is responsible under ERISA to provide benefits to participants in terminated plans, appealed the Bankruptcy Court's decision, arguing that it should have applied the reorganization test on a plan-by-plan basis to each of Kaiser's pension plans. Under this approach, the PBGC contends that some of Kaiser's plans would not fulfill the reorganization test, and therefore could not be terminated. The District Court upheld the Bankruptcy Court's decision and the PBGC appealed to our Court.
We conclude that the Bankruptcy Court correctly applied the reorganization test in the aggregate to all of the plans Kaiser sought to terminate. Congress has not provided any guidance as to how to apply the reorganization test given the fact pattern before us, and the plan-by-plan approach appears unworkable. By contrast, applying the reorganization test to multiple plans in the aggregate is straightforward. A basic principle of statutory construction is that we should avoid a statutory interpretation that leads to absurd results. See Griffin v. Oceanic Contractors, Inc., 458 U.S. 564, 575, 102 S.Ct. 3245, 73 L.Ed.2d 973 (1982). Because it would be anomalous for Congress to mandate an unworkable approach to the reorganization test, we read ERISA as requiring an aggregated analysis.
We are also persuaded that applying the reorganization test on a plan-by-plan basis would result in unfair and inequitable consequences in that it would require bankruptcy courts to give preference to some similarly situated constituents over others. The bankruptcy courts are courts of equity that are guided by equitable principles. Absent a clear congressional mandate to the contrary, we will not impose upon them an approach to the reorganization test that would conflict with their tradition of preventing unfairness in bankruptcy proceedings. Congress must speak more clearly than it has in ERISA if it wishes the bankruptcy courts to take a plan-by-plan approach to the reorganization test.
Finally, we consider, and reject, the PBGC's arguments based on legislative history, deference to its administrative interpretation, and public policy. We will therefore affirm the decision of the District Court upholding the Bankruptcy Court.
Kaiser is involved in all aspects of the aluminum industry, including mining raw materials, refining them, and manufacturing aluminum products. As of January 1, 2003, Kaiser employed approximately 3,000 workers domestically. In addition, it was responsible for the retiree benefits (primarily medical) of more than 15,300 retirees and dependent spouses and the pension benefits of over 11,000 retirees and beneficiaries. In late 2001 and early 2002, weak industry conditions, imminent debt maturities, burdensome asbestos litigation, and growing legacy obligations for future retiree medical and pension costs took its toll on Kaiser. Unable to restructure their obligations outside of bankruptcy, Kaiser and its related corporate entities filed for relief under Chapter 11 of the Bankruptcy Code between February 2002 and January 2003.
Congress established the PBGC in 1974 as part of ERISA. Its purpose is to encourage the continuation and maintenance of private-sector defined benefit pension plans, provide timely and uninterrupted payment of pension benefits, and keep pension insurance premiums at a minimum. 29 U.S.C. § 1302(a). To this end, the PBGC provides a minimum level of pension benefits to participants in qualified pension plans in the event that the plans cannot pay benefits. As of September 30, 2005, the PBGC insured 44.1 million American workers participating in 30,330 private-sector defined benefit pension plans. PBGC, PBGC Performance and Accountability Report for Fiscal Year 2005 1 (2005), available at http:// www.PBGC.gov/docs/2005par.pdf ("PBGC Performance Report").
The PBGC is not funded by general tax revenues. Rather, it collects insurance premiums from employers that sponsor insured pension plans, earns money from investments, and receives funds from pension plans it takes over. Id. at 1. The PBGC pays monthly retirement benefits, up to a guaranteed maximum, to about 683,000 retirees in 3,595 pension plans that have terminated.1 Including those who have not yet retired and participants in multiemployer plans receiving financial assistance, the PBGC is directly responsible for the current and future benefits of 1.3 million active and retired workers whose plans have failed. Id. at 2. The benefits guaranteed by the PBGC are often substantially lower than the fully vested pensions due to plan participants. See Mertens v. Hewitt Assocs., 508 U.S. 248, 250, 113 S.Ct. 2063, 124 L.Ed.2d 161 (1993). Since 1987, a plan's sponsor is liable to the PBGC for the total amount of unfunded benefit liabilities to all participants and beneficiaries under the plan. 29 U.S.C. § 1362(b).
As part of its reorganization, Kaiser originally sought to replace seven pension plans that had been established in connection with collective bargaining agreements ("CBAs") then in effect with various unions.2 The plans and associated CBAs are listed in the table below:
------------------------------------------------------------
PENSION PLAN UNION(S) COVERED
------------------------------------------------------------
Kaiser Aluminum Pension United Steelworkers of
Plan ("KAP Plan") America ("USWA")
------------------------------------------------------------
Kaiser Aluminum Tulsa USWA
Pension Plan ("Tulsa Plan")
------------------------------------------------------------
Kaiser Aluminum Bellwood USWA; International Association
Pension Plan ("Bellwood of Machinists &
Plan") Aerospace Workers
("IAM")
------------------------------------------------------------
Kaiser Aluminum Sherman IAM
Pension Plan ("Sherman
Plan")
------------------------------------------------------------
Kaiser Aluminum Inactive USWA; IAM; United Automobile
Pension Plan ("Inactive Aerospace, and
Plan")3 Agricultural Implement
Workers of America
("UAW")
------------------------------------------------------------
Kaiser Aluminum Los Angeles International Brotherhood
Extrusion Pension of Teamsters ("Teamsters")
Plan ("LA Extrusion Plan")
------------------------------------------------------------
Kaiser Center Garage Teamsters Automotive
Pension Plan ("Garage Employees, Local 78
Plan")
------------------------------------------------------------
These plans covered nearly 13,500 active hourly workers, participants on leave or layoff, individuals who were terminated from employment, retirees, and beneficiaries. On January 11, 2004, Kaiser filed a motion seeking the Bankruptcy Court's approval to terminate all seven plans in a voluntary "distress termination" under Title IV of ERISA, 29 U.S.C. § 1341(c)(2)(B)(ii). Kaiser asserted in its motion that it owed nearly $48 million in unfunded minimum contributions for the 2003 plan year and would be required to make $230 million in minimum contributions to the plans between 2004 and 2009. In separate motions, Kaiser also requested that the Bankruptcy Court (1) use its authority under 11 U.S.C. § 1113 to reject its CBAs with USWA and IAM, under which several of the pension plans had been established, and (2) authorize the modification of retiree benefits pursuant to 11 U.S.C. § 1114.
Prior to the February 2, 2004 hearing at which the Bankruptcy Court was to consider these motions, Kaiser reached agreements with USWA, IAM, and the official committee of salaried retirees ("1114 Committee") providing for consensual termination of the KAP Plan, Tulsa Plan, Bellwood Plan, Sherman Plan, and Inactive Plan, and for the institution of replacements for these plans. At the hearing, Kaiser asked the Bankruptcy Court to approve these agreements. The company had not yet reached agreements with UAW or the Teamsters to terminate the Inactive Plan and the LA Extrusion Plan,...
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