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United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued April 21, 2003 Decided July 11, 2003
No. 02-5144
ALLIED PILOTS ASSOCIATION, ET AL.,
APPELLANTS
v.
PENSION BENEFIT GUARANTY CORPORATION, ET AL.,
APPELLEES
Appeal from the United States District Court
for the District of Columbia
(No. 00cv03113)
Kathy L. Krieger argued the cause for appellants. With
her on the briefs was Edgar N. James. Clay Warner and
Michael E. Abram entered appearances.
Jeffrey B. Cohen, Deputy General Counsel, Pension Benefit
Guaranty Corporation, argued the cause for appellee. With
him on the brief were James J. Keightley, General Counsel,
and John A. Menke and Paula J. Connelly, Senior Counsel.
Bills of costs must be filed within 14 days after entry of judgment.
The court looks with disfavor upon motions to file bills of costs out
of time.
2
David P. Gersch argued the cause for appellees Pichin
Corporation and Icahn Associates Corporation. With him on
the brief was John D. Daley.
Before: GINSBURG, Chief Judge, and EDWARDS and TATEL,
Circuit Judges.
Opinion for the Court filed by Circuit Judge TATEL.
TATEL, Circuit Judge: This case arises out of a settlement
agreement concerning Trans World Airlines’ employee pen-
sion plans. Agreed to over a decade ago by TWA, TWA’s
employees, the financier Carl Icahn, and the Pension Benefit
Guaranty Corporation (PBGC), the agreement required the
PBGC to terminate the plans if certain defined ‘‘Significant
Events’’ were to occur. Eight years later, when one of the
‘‘Significant Events’’ occurred, the PBGC terminated the
plans, and now a group of pilots sue the PBGC, claiming that
termination, even if mandated by the settlement agreement,
violates federal law. Because we conclude that federal law
authorizes the PBGC to enter into settlement agreements like
the one challenged in this case, we agree with the district
court that the PBGC’s termination of TWA’s pension plans
was permissible.
I.
Title IV of the Employee Retirement Income Security Act,
29 U.S.C. § 1301 et seq., created the Pension Benefit Guaran-
ty Corporation—‘‘a wholly owned United States Government
corporation, modeled after the Federal Deposit Insurance
Corporation,’’ PBGC v. LTV Corp., 496 U.S. 633, 636–37
(1990) (internal citation omitted), to enforce and administer ‘‘a
mandatory Government insurance program TTT protect[ing]
the pension benefits of over 30 million private-sector Ameri-
can workers who participate in plans covered by the Title,’’
id. at 637. This case concerns the PBGC’s authority to
terminate pension plans involuntarily, meaning that the
PBGC assumes trusteeship and uses the plan’s remaining
assets, supplemented by the PBGC’s own funds, to pay
employees a percentage of benefits owed, as determined by
3
ERISA and regulations promulgated thereunder. Id. at 637–
38.
The PBGC ‘‘may institute proceedings TTT to terminate a
plan whenever it determines that’’ one of four criteria, which
measure the plan’s inability to meet future liabilities, is
satisfied. 29 U.S.C. § 1342(a). Specifically, it may terminate
a plan if
(1) the plan has not met the minimum funding
standard required [by certain provisions of the tax
code],
(2) the plan will be unable to pay benefits when
due,
(3) the reportable event described in section
1343(c)(7) of this title has occurred, or
(4) the possible long-run loss of the corporation
with respect to the plan may reasonably be expected
to increase unreasonably if the plan is not terminat-
ed.
Id. The PBGC initiates the termination process by ‘‘issuing a
notice TTT to a plan administrator [of the PBGC’s] deter-
min[ation] that the plan should be terminated.’’ Id.
§ 1342(c). If the plan administrator challenges the PBGC’s
determination, the PBGC ‘‘may, upon notice to the plan
administrator, apply to the appropriate United States district
court for a decree adjudicating that the plan must be termi-
nated.’’ Id. If the terminated plan lacks sufficient funds to
satisfy existing obligations to employees, thus requiring the
PBGC to use its own funds to pay benefits, the PBGC has
authority to recover ‘‘the total amount of the unfunded benefit
liabilities,’’ id. § 1362(a), (b), from the plan’s sponsor and
members of the sponsor’s ‘‘controlled group,’’ i.e., entities that
belong to the same corporate family as the sponsor, id.
§ 1301(a)(14)(A), (B) (incorporating by reference Internal
Revenue Service regulations defining ‘‘common control’’).
ERISA authorizes the PBGC ‘‘to make arrangements with
[plan] sponsors and members of their controlled groups who
are or may become liable under [ERISA] for payment of their
liability.’’ Id. § 1367 (emphasis added).
4
In January 1992, Trans World Airlines filed for Chapter 11
bankruptcy in the United States District Court for the Dis-
trict of Delaware. Responding to a proposed reorganization
plan that would have severed financier Carl Icahn’s ‘‘con-
trolled group’’ affiliation with TWA, the PBGC announced its
intention to terminate TWA’s pension plans before the pro-
posed reorganization plan could be confirmed and to pursue
TWA and Icahn for $1.124 billion in alleged underfunding. In
order to forestall or prevent termination, TWA, TWA’s un-
ions, Icahn, and the PBGC entered into a Comprehensive
Settlement Agreement (CSA). As ably summarized by the
district court, the CSA contained the following relevant provi-
sions:
(1) Carl Icahn would loan TWA $200 million; (2) An
Icahn entity (Pichin [Corporation], a named defen-
dant in this suit) would sponsor the pension plans
instead of TWA. Thus, Icahn became responsible
for making the minimum funding contributions and
TWA was released from all liability for the plans;
(3) TWA was to issue $300 million in notes to make
part of the annual pension plan contributions in
compliance with ERISA and provisions of the Inter-
nal Revenue Code; (4) PBGC would not terminate
the plans and would release TWA and Icahn from all
future termination liability, except for what was
agreed to in the CSA; (5) PBGC would, at Icahn’s
request, terminate the plans if a ‘‘Significant
Event,’’ as defined in the CSA, occurred and; (6)
that in the event of a Significant Event requiring
termination, Icahn’s liability to PBGC would be lim-
ited to $240 million.
Air Line Pilots Ass’n v. PBGC, 193 F. Supp. 2d 209, 213
(D.D.C. 2002) (emphasis in original). In 1992, the bankruptcy
court approved a reorganization plan incorporating the CSA.
In re Trans World Airlines, Inc., No. 92–115 (Bankr. D. Del.
Dec. 30, 1992) (Order Authorizing and Approving Settlement
and Compromise Among the Debtor, Pension Benefit Guaran-
ty Corporation, the Icahn Entities, the Official Unsecured
5
Creditors’ Committee, and the Debtor’s Unions) (‘‘Bankrupt-
cy Order’’).
Eight years later, Pichin gave notice to the CSA signatories
that a defined ‘‘Significant Event’’ had occurred—namely, an
unfavorable Internal Revenue Service ruling concerning
Icahn’s tax liabilities for serving as plan sponsor. In January
2001, TWA, Pichin, and the PBGC signed an agreement that
terminated the plans.
Two TWA pilots and the Air Line Pilots Association (‘‘pi-
lots’’) filed suit in the United States District Court for the
District of Columbia against the PBGC and Pichin. Disput-
ing neither that a ‘‘Significant Event’’ had occurred, nor that
the CSA, which the pilots’ union had signed, mandated termi-
nation of TWA’s plans, the pilots contended that the PBGC
had exceeded its statutory authority by terminating a plan
based on the terms of a non-statutory, private law agreement
such as the CSA, rather than based on ERISA’s criteria for
involuntary terminations. On cross motions for summary
judgment, the district court ruled for the PBGC and Pichin.
Although the court accepted the pilots’ premise that the
PBGC may not terminate plans based on factors other than
the ERISA criteria, it found that the PBGC’s action was
neither arbitrary nor capricious because it had made an
ERISA-based determination in 1992 and that the decision to
terminate in 2001 rested on the 1992 determination. Air
Line Pilots Ass’n, 193 F. Supp. 2d at 216–21.
The pilots appeal, with the Allied Pilots Association—which
assumed collective bargaining responsibilities for TWA’s pi-
lots after TWA’s acquisition by American Airlines, Inc.—
substituted for the Air Line Pilots Association. We review
the district court’s grant of summary judgment de novo.
Troy Corp. v. Browner, 120 F.3d 277, 281 (D.C. Cir. 1997).
II.
On appeal, the pilots argue (1) that the PBGC failed to
make an administrative determination in 1992 that the TWA
pension plans satisfied ERISA’s involuntary termination cri-
teria and (2) that even if the PBGC made a proper determina-
6
tion in 1992, it acted arbitrarily and capriciously by failing to
make a second such determination in 2001 before formally
terminating the plans. The PBGC replies (1) that it in fact
made the requisite determination in 1992 and (2) that ERISA
authorizes it to enter into agreements, like the CSA, which
postpone—possibly indefinitely—execution of the 1992 termi-
nation decision.
We begin with the parties’ disagreement over whether the
PBGC actually determined in 1992 that the TWA plans met
ERISA’s involuntary termination criteria. The bankruptcy
court’s order approving TWA’s reorganization plan makes
clear that the PBGC made just such a determination: ‘‘PBGC
has indicated that, absent the [CSA], PBGC would seek
termination of [TWA’s pension plans] in advance of severance
of the controlled group affiliation between TWA and the
Icahn Entities and TWA’s emergence from bankruptcy.’’
Bankruptcy Order at 5. Because the pilots were party to the
1992 litigation and never contested this finding, it is res
judicata here. See, e.g., Nevada v. United States, 463 U.S.
110, 129–30 (1983) (‘‘[T]he doctrine of res judicata provides
that when a final judgment has been entered on the merits of
a case, ‘[i]t is a finality as to the claim or demand in
controversy, concluding parties and those in privity with
them, not only as to every matter which was offered and
received to sustain or defeat the claim or demand, but as to
any other admissible matter which might have been offered
for that purpose.’ ’’ (internal citation omitted)).
The pilots argue that the PBGC’s notification of intent to
terminate the plans should not be considered a formal admin-
istrative determination, but rather a mere ‘‘bargaining posi-
tion.’’ Appellants’ Br. at 40 (internal quotation marks omit-
ted). We disagree. ERISA, which authorizes the PBGC to
terminate a plan ‘‘whenever it determines that’’ one of four
criteria is met, 29 U.S.C. § 1342(a), imposes no procedural
strictures on the PBGC other than requiring it to ‘‘issu[e] a
notice TTT to a plan administrator [that the PBGC] has
determined that the plan should be terminated’’ before seek-
ing either district court enforcement or voluntary settlement,
id. § 1342(c). So when the PBGC notified TWA that, absent
7
ratification of the CSA, it intended to terminate the plans, it
made exactly the determination that ERISA requires. True,
the PBGC chose not to seek district court enforcement after
the parties ratified the CSA, but that in no way changes the
fact that the PBGC actually determined in 1992 that ERISA
authorized involuntary termination.
The pilots next argue that the district court erred because
it acted on a record that included only agency affidavits and
the bankruptcy court’s recitation, not the PBGC’s administra-
tive record. Although we did vacate a district court judg-
ment for want of a formal administrative record in American
Bioscience, Inc. v. Thompson, 243 F.3d 579 (D.C. Cir. 2001),
and the Supreme Court did the same in Citizens to Preserve
Overton Park, Inc. v. Volpe, 401 U.S. 402 (1971), those cases
decided an issue distinguishable from the one we face here.
Both cases hold that district courts must review ‘‘the full
administrative record[s] that w[ere] before the [agencies] at
the time [they] made [their] decision[s]’’—rather than ‘‘litiga-
tion affidavits’’ offering ‘‘ ‘post hoc’ rationalizations’’—prior to
determining whether agency decisions complied with applica-
ble statutes. Id. at 420. Here, in contrast, we need not
consider whether the PBGC’s 1992 determination complied
with ERISA—in fact, the pilots’ briefs nowhere deny that the
PBGC would have been justified in involuntarily terminating
the plans in 1992—but only whether the PBGC actually made
such a determination. The bankruptcy court’s recitation
answers that question.
Turning to the pilots’ claim that the PBGC acted arbitrarily
and capriciously by failing to make a second involuntary
termination determination in 2001, we begin by observing
that the CSA provides that TWA’s pension plans ‘‘shall TTT
be terminated under [29 U.S.C. § 1342] TTT after the occur-
rence of a Significant Event as defined herein.’’ Given the
well-recognized principle that ‘‘[t]he word ‘shall’ is ordinarily
[t]he language of command,’’ Anderson v. Yungkau, 329 U.S.
482, 485 (1947) (internal quotation marks and citations omit-
ted), this provision leaves no doubt that, under the terms of
the CSA, the PBGC was obligated to terminate the plans
when the Significant Event occurred—regardless of whether
8
the criteria for involuntary termination were satisfied at that
time.
We have no doubt, moreover, that in view of the Supreme
Court’s admonition that ‘‘[i]n enacting Title IV, Congress
sought to ensure that employees and their beneficiaries would
not be completely deprived of anticipated retirement benefits
by the termination of pension plans before sufficient funds
have been accumulated in the plans,’’ LTV Corp., 496 U.S. at
637 (internal quotation marks omitted), the PBGC has statu-
tory authority to postpone termination until occurrence of a
defined event where, as here, the PBGC agrees to do so as
one element of a liability settlement aimed at preventing
termination altogether. The PBGC’s general authority to
enter into liability settlements comes from ERISA section
4067, which empowers the PBGC ‘‘to make arrangements
with [plan] sponsors and members of their controlled groups
who are or may become liable under [the statute] for payment
of their liability.’’ 29 U.S.C. § 1367 (emphasis added). As
the bankruptcy court found, the PBGC entered into the CSA
pursuant to its section 4067 authority. Bankruptcy Order at
5. Under the CSA, Icahn agreed to accept the ongoing role
of plan sponsor and to contribute funds to shore up the plans;
in return, the PBGC agreed to postpone—perhaps indefinite-
ly—its termination of TWA’s plans, to cap Icahn’s direct
liability in the event of termination at $240 million, and to
terminate the plans, upon request, if Icahn received unfavora-
ble tax treatment concerning his status as plan sponsor.
Each of these promises and counter-promises formed an
integral part of the overall negotiated settlement, whose
purpose was to prevent termination altogether. Though the
CSA failed to achieve that goal, it did postpone termination
for eight years, during which time the maximum amount that
the PBGC pays beneficiaries of terminated pension plans
increased 44%, from $28,227 to $40,705 per year. See Bene-
fits Payable in Terminated Single–Employer Plans, 29 C.F.R.
§ 4022.22(b) & pt. 4022, app. D (increase from 1992 to 2001).
9
The judgment of the district court is affirmed.
So ordered.