In re U.S. Airways Group, Inc., 03-1825.

• Decision Date: 27 May 2004
• Docket Number: No. 03-1825.,03-1825.
• Citation: 369 F.3d 806
• Parties: In Re: US AIRWAYS GROUP, INCORPORATED, Debtor. The Retired Pilots Association of U.S. Airways, Incorporated (Soaring Eagles), Plaintiff-Appellant, v. US Airways Group, Incorporated, Debtor-Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

369 F.3d 806

In Re: US AIRWAYS GROUP, INCORPORATED, Debtor The Retired Pilots Association of U.S. Airways, Incorporated (Soaring Eagles), Plaintiff-Appellant, v. US Airways Group, Incorporated, Debtor-Appellee.

No. 03-1825.

United States Court of Appeals, Fourth Circuit.

Argued: February 26, 2004.

Decided: May 27, 2004.

ARGUED:

Jeffrey Gans, Thelan, Reid & Priest, L.L.P., Washington, D.C., for Appellant. Edward Joseph Meehan, Skadden, Arps, Slate, Meagher & Flom, L.L.P., Washington, D.C., for Appellee.

ON BRIEF:

Sherwin S. Kaplan, Thelan, Reid & Priest, L.L.P., Washington, D.C., for Appellant. John Wm. Butler, Jr., John K. Lyons, Skadden, Arps, Slate, Meagher & Flom, L.L.P., Chicago, Illinois; Alesia Ranney-Marinelli, Skadden, Arps, Slate, Meagher & Flom, L.L.P., New York, New York; E. Duncan Getchell, Jr., McGuirewoods, L.L.P., Richmond, Virginia; Lawrence E. Rifken, Douglas M. Foley, McGuirewoods, L.L.P., McLean, Virginia; Janet L. Dhillon, Alexander W. Powell, Jr., Skadden, Arps, Slate, Meagher & Flom, L.L.P., Washington, D.C., for Appellee.

Before WILKINSON and KING, Circuit Judges, and QUARLES, United States District Judge for the District of Maryland, sitting by designation.

Affirmed by published opinion. Judge WILKINSON wrote the opinion, in which Judge KING and Judge QUARLES joined.

WILKINSON, Circuit Judge:

During the course of its bankruptcy reorganization, appellee U.S. Airways Group, Inc. moved the bankruptcy court for permission to terminate a pension plan it maintained for its pilots. Appellant Retired Pilots Association of U.S. Airways, Inc. opposed the motion. The bankruptcy court found that U.S. Airways had demonstrated that it could not succeed in its reorganization efforts without terminating the pension plan. The bankruptcy court therefore issued an order allowing U.S. Airways to effect a distress termination of the pension plan and to replace it with a new pension plan that would cover only active and other non-retired pilots.

Appellant did not seek a stay of this order, and it did not object to the subsequent implementation of U.S. Airways' reorganization plan. As a result, by the time appellant's challenge to the bankruptcy court's termination order reached the district court, the termination order had been fully consummated and the company's reorganization plan had been confirmed and substantially implemented. The district court therefore dismissed the appeal as equitably moot. Because reversal of the bankruptcy court's termination order at this late stage would undermine the reorganization plan and the interests of third parties relying upon the plan, we affirm.

I.

US Airways filed a voluntary petition for Chapter 11 reorganization on August 11, 2002. US Airways needed a fast-track reorganization so that, among other reasons, it would not lose the services of its credit card processing company. It therefore chose March 31, 2003 as its target date to emerge from bankruptcy. In order to continue its operations while in bankruptcy, U.S. Airways secured a $500 million debtor-in-possession loan from The Retirement Systems of Alabama Holdings, LLC ("RSA"). To support its post-emergence operations, the company obtained commitments from RSA, the Air Transportation Stabilization Board ("ATSB"), and Bank of America for $1 billion in exit financing and $240 million of equity investment. In order to receive these loans, however, U.S. Airways had to meet certain financial projections.

The particular issue that threatened U.S. Airways' ability to access the loans was an escalating pension plan funding problem. Between June 2002 and November 2002, U.S. Airways' projected contribution requirements for all of its defined benefit pension plans had increased from $2.5 billion to $3.6 billion because of lower interest rates and poor performance by the stock market. At the same time, the company's projected income had declined considerably, in part because of declines in passenger revenues in the entire airline industry after the terrorist attacks of September 11th.

To remedy this problem, U.S. Airways revised its business plan. Among the changes it made, the company projected reduced contributions of $850 million to the Retirement Income Plan for Pilots of U.S. Airways, Inc. That pension plan, which is at the center of this appeal, was an underfunded plan guaranteed by the Pension Benefit Guaranty Corporation ("PBGC"). The ATSB approved the revised business plan, but it expressly conditioned its approval on U.S. Airways resolving the pension funding problem.

US Airways therefore explored a variety of ways to meet the projected contributions of $850 million to the pension plan. In conjunction with the Air Line Pilots Association ("ALPA"), U.S. Airways considered reducing costs, freezing the benefits under the pension plan, or freezing the benefits under all of U.S. Airways' pension plans. None of these options, however, proved sufficient to meet the $850 million contribution level. Moreover, U.S. Airways' attempts to obtain administrative and legislative assistance failed. First, the IRS rejected a joint proposal by U.S. Airways and ALPA to receive a special funding waiver that would alleviate the pension funding requirements. Second, the PBGC rejected a joint proposal for restoration funding, which would have permitted U.S. Airways to pay its plan liabilities over a longer period of time. Finally, Congress rejected legislation proposed on behalf of U.S. Airways and ALPA to reduce the annual funding required for the pension plan to an affordable level.

Having failed in these efforts to meet the $850 million contribution level, U.S. Airways filed a notice of intent to terminate the pension plan on January 30, 2003. See 29 U.S.C. § 1341(c)(1)(A). Under the Employee Retirement Income Security Act (ERISA), U.S. Airways could effect such a "distress termination" only upon the bankruptcy court's finding that, "unless the [pension] plan is terminated, [US Airways] will be unable to pay all its debts pursuant to a plan of reorganization and will be unable to continue in business outside the chapter 11 reorganization process." Id. § 1341(c)(2)(B)(ii)(IV). Appellant, in addition to ALPA and other pilot groups, opposed U.S. Airways' motion. ALPA also filed a grievance, alleging that a distress termination would violate the terms of U.S. Airways' collective bargaining agreement with its active pilots.

On March 2, 2003, the bankruptcy court entered an order finding that U.S. Airways had demonstrated the financial requirements necessary for a distress termination. The court therefore permitted U.S. Airways to terminate the pension plan, subject to a determination that doing so would not violate the collective bargaining agreement. US Airways then resolved the collective bargaining agreement issue on March 21, 2003, when it reached an agreement with ALPA to terminate the pension plan effective on March 31 and to replace it with a new pension plan for its active and other non-retired pilots. Retired pilots, not covered by the new pension plan, would be entitled only to the reduced benefits guaranteed by the PBGC under the old pension plan. Appellant filed a notice of appeal of the bankruptcy court's termination order on March 6, 2003, but it did not move for a stay of that order, and neither did it challenge or request a stay of U.S. Airways' proposed reorganization plan.

Then, on March 18, 2003, the bankruptcy court issued a confirmation order approving U.S. Airways' reorganization plan. US Airways subsequently obtained approval from ALPA, the PBGC, and the bankruptcy court to terminate the pension plan and to put the new pension plan for active and non-retired pilots in its place. On March 28, the PBGC executed the termination of the pension plan and assumed the plan's liabilities. US Airways successfully emerged from Chapter 11 bankruptcy on March 31 and received the $1.24 billion in exit financing and equity investment as a result of meeting its financial projections. Since that time, U.S. Airways has continued its business operations and has entered into hundreds of transactions with third parties.

Appellant, however, continued with its appeal of the bankruptcy court's termination order, though it had not objected to U.S. Airways' plan of reorganization or to the confirmation order. Appellant argued that U.S. Airways could have met its financial projections and could have reorganized itself without immediately terminating the pension plan. Rather than addressing the merits of appellant's...