In re Shenango Group Inc.

• Decision Date: 06 September 2007
• Docket Number: No. 05-4805.,05-4805.
• Citation: 501 F.3d 338
• Parties: In re: SHENANGO GROUP INC.; Shenango Incorporated; The Hockensmith Corporation Shenango Incorporated, Appellant.
• Court: U.S. Court of Appeals — Third Circuit

501 F.3d 338

In re: SHENANGO GROUP INC.; Shenango Incorporated; The Hockensmith Corporation Shenango Incorporated, Appellant.

No. 05-4805.

United States Court of Appeals, Third Circuit.

Submitted Pursuant to Third Circuit L.A.R. 34.1(a) May 15, 2007.

Filed: September 6, 2007.

George M. Cheever, Kirkpatrick & Lockhart Preston Gates Ellis, Pittsburgh, PA, Counsel for Appellant.

James A. Prostko, Todd T. Zwikl, Pittsburgh, PA, Counsel for Appellee.

Before: SMITH, NYGAARD, and ROTH, Circuit Judges.

OPINION

SMITH, Circuit Judge.

This appeal asks whether Shenango Incorporated, the reorganized debtor, was obligated under the Confirmed Plan of Reorganization to fully fund its Pension Plan to cover an increase in benefits to beneficiaries of so-called window pensions in 2000 and 2001 immediately upon Shenango's determination to grant the enhanced benefits. Shenango contends that the Confirmed Plan of Reorganization did not require full funding of the increase in benefits at the time the decision was made to grant the window pensions. The retired beneficiaries in Class 4B assert that the Confirmed Plan imposed such an obligation. The Bankruptcy Court agreed with the Class 4B retirees. The District Court affirmed. This appeal followed. For the reasons set forth below, we will affirm the judgment of the District Court.

I.

Shenango filed a voluntary petition for Chapter 11 relief on December 14, 1992. On March 2, 1994, the Bankruptcy Court confirmed Shenango's Second Amended Joint Plan of Reorganization ("Plan" or "Reorganization Plan"). Under the Plan, the Class 4 Claims concerned retiree benefits.

Section 4.04 of the Reorganization Plan addressed, inter alia, the Class 4 retirees' rights to medical benefit coverage, life insurance, and pension benefits. The introductory clause of this subsection stated that "[n]either Debtors nor any member of the Aloe Controlled Group[, Shenango's Holding Company,] shall have any funding obligations to the Pension Plan as a result of this section 4.04(h), other than the obligations which exist without regard thereto." Subsection (h) concerned the interest of a subclass of retirees, known as the Class 4B retirees, in the allocation of any Pension Plan surplus. Paragraph (x) of subsection 4.04(h) pertained to certain conditions regarding amending the Pension Plan. It specified that the Pension Plan shall be amended to provide, inter alia, that none of the assets of the Pension Plan would revert back to the Pension Plan sponsor until all liabilities to Class 4B Claimants had been satisfied by either a distribution of any surplus or a benefit enhancement. Paragraph (x) also specified that until the Class 4B Claimants received their maximum entitlement,

no benefit increases may be provided for any participants in the Pension Plan who are not Class 4B Claimants, unless . . . the Pension Board has determined that Shenango has adequate financial resources to fully fund such increases without taking into account either Surplus then or thereafter expected to be available under the Pension Plan. . . .

Although the Bankruptcy Court confirmed the Reorganization Plan in March of 1994, it did not issue the final decree until March 3, 1999.

In 1999, the Pension Board switched from a "60/40 investment strategy" to a "dedicated bond portfolio." This proved to be a successful strategy as the Pension Plan captured the appreciation of its assets, thereby allowing it to maintain the surplus which existed at that time.

On August 1, 2000, Shenango and the United Steelworkers of America ("USWA") agreed to an early retirement window pension for 14 individuals. The agreement provided for an additional payment to each recipient for two years. The total benefits to be paid to the window pension recipients were valued at $1,042,500.00.

In 2001, a second window pension was considered. In May of 2001, Edward Krafft, a retired engineer with Shenango, who was also on the Pension Board as the retiree representative, sent a letter to the Pension Board objecting to the offering of a second window pension to certain active employees because the first window pension agreed to in August of 2000 had yet to be funded. Despite this objection, Shenango and the USWA agreed in August of 2001 to a second window pension. The benefits under this second window pension were valued at $766,600.00. The Class 4B retirees asserted that full funding was required under the terms of § 4.04(h) of the Reorganization Plan at the time the determination was made to grant this second window pension to non-Class 4B retirees, and they demanded that Shenango tender the requisite funding at that point in time. When their demands were not met, the Class 4B retirees' representative filed a motion to reopen the bankruptcy case. The representative simultaneously filed a motion to compel compliance with the Reorganization Plan. Shenango argued that the Bankruptcy Court lacked jurisdiction over this dispute.

In an opinion and recommendation dated July 27, 2004, the Bankruptcy Court concluded that it possessed "related to" jurisdiction under 28 U.S.C. § 157(c). Because this was not a core proceeding, the Bankruptcy Court recommended that the District Court grant the motion to compel compliance. The Bankruptcy Court reviewed the history of the negotiations relating to Shenango's reorganization. For example, the Bankruptcy Court noted that although the retirees had agreed to a reduction in medical benefits, the strategy was valuable because it preserved their status as an unimpaired class and hence their bargaining position. Pension Plan liabilities were also negotiated, according to the Bankruptcy Court. Although "the retirees attempted to obtain a cost of living benefit in their pensions," Bankruptcy Court slip op. at 5, they were able to obtain only a claim on behalf of the Class 4B retirees to a possible pension surplus, and the provision in § 4.04(h)(x) prohibiting any pension increase to other retirees if the increase was not fully funded. In other words, the retirees' negotiations netted only "a prohibitory benefit, that is, no increased benefits to new retirees unless increased benefits were fully funded. That provision protects both a potential surplus and also helps delay a potential deficiency in the pension fund." Bankruptcy Court slip op, at 5. The Aloe Controlled Group also received a valuable benefit, the Bankruptcy Court explained, as it was "relieved of [its] obligation to fund the pension plan under certain conditions." Bankruptcy Court slip op. at 15.

Against this backdrop, the Bankruptcy Court noted that the parties relied upon the text of the Reorganization Plan to support their respective positions in the funding dispute. According to the Class 4B retirees, the requirement to fully fund the Pension Plan at the time the decision was made to grant the window pension was set forth in § 4.04(h)(x), which specified that no increase shall be provided "unless the Pension Board has determined that Shenango has adequate financial resources to fully fund such increases without taking into account either Surplus. . . ." Shenango refused to fund the benefit increases based on the Reorganized Plan's statement in § 4.04(h) that it shall not have "funding obligations to the Pension Plan as a result of this section. . . ." After consideration of these provisions, the Bankruptcy Court declared that the Reorganization Plan was not ambiguous and that there was a "clear duty imposed upon Shenango to fully fund benefit increases without taking into account either surplus then or thereafter expected to be available, otherwise, the provision of § 4.04(h)(x)(1) is rendered a nullity." The Bankruptcy Court pointed out that fully funding any increase in benefits "clearly prevents dilution and prevents an earlier failure of the pension fund," that Shenango essentially paid "for the window pensions with the appreciated values in the pension fund because these higher values exceeded ERISA minimums," and that Shenango's "shareholders benefitted from the use of the appreciated status of the Pension Plan to fund the costs of increased benefits with no expense to Shenango." The Bankruptcy Court concluded, based on the language of the Plan and the circumstances, that the first part of § 4.04(h)(x) prohibits pension benefit increases, but the latter part creates an express exception permitting "increased benefits if the Pension Board has determined that Shenango has adequate financial resources to fully fund such increases without taking into account surplus." Bankruptcy Court slip op. at 18. Accordingly, the Bankruptcy Court recommended that Shenango be directed to fund the window benefits at the amount of their valuation, plus interest, and that Shenango be enjoined from granting future benefits without fully funding such increases.

On September 27, 2005, the District Court adopted the Bankruptcy Court's opinion and recommendation, and directed Shenango to "fund the pension plan in the amounts of $1,042,500.00 and $766,660.00, as damages for breach of contract, plus interest in the amount of seven percent. . . ." This timely appeal followed.

II.

Shenango contends that the Bankruptcy Court did not have "related to" jurisdiction under 28 U.S.C. § 157(c) over this post-confirmation dispute. It relies on In re Resorts International, Inc., 372 F.3d 154, 169 (3d Cir.2004), which concluded that "related to" jurisdiction was lacking over a post-confirmation malpractice claim by the trustee of a litigation trust against the trust's accountants. Although there are a few similarities between this case and Resorts International, we conclude that the Bankruptcy Court correctly determined that it had "related to" jurisdiction.

In Resorts International, we reiterated that "`[a]n action is related to bankruptcy if the outcome could alter the debtor's rights, liabilities, options or freedom of action (either positively or negatively) and which in any way impacts...