Blogging Employee Benefits

April 2, 2006

United Retired Pilots Lose Appeal

Filed under: Bankruptcy, Collective Bargaining, Termination (Plan) — Fuguerre @ 11:20 am

Since no feasible remedy remains, the 7th Circuit has affirmed district court approval of decisions of the bankruptcy court permitting United Airlines to terminate its pilots pension plan without a hearing to determine whether retired pilots should receive replacement benefits. [United Retired Pilots Benefit Protection Association v. United Airlines, No. 05-3121]

An agreement (the "Letter Agreement") to modify the collective bargaining agreement negotiated between United and the pilots' union gave the active pilots compensation in exchange for a union promise not to oppose voluntary termination of the pension plan. The bankruptcy judge approved that agreement under 11 U.S.C. §363(b)(1), which requires bankruptcy court approval for contracts made by the debtor during the bankruptcy that are outside the ordinary course of business. Retired pilots had no representation in those negotiations, and they received no replacement compensation under the agreement.

The question presented by the retired pilots' appeal boils down to whether the bankruptcy judge could approve that agreement without giving any consideration to the retired pilots' interests.

United argued that retired pilots had no stake in the Letter Agreement negotiations, since the retirees had no right to enforce the collective bargaining agreement. While correct, the appellate court pointed out that retirees retained the right to oppose the termination of the pension plan, a right which the active pilots had exchanged for compensation. "But what is true," further observed the court, "is that the already daunting complexity of major corporate bankruptcies would be multiplied if anyone with some potential blocking power, yet whom the trustee or debtor in possession had not thought it worthwhile trying to buy peace with, could insist on negotiating rights as a condition of the bankruptcy judge's approving a transaction out of the ordinary course." Accordingly, to avoid unraveling the §1342 proceeding, perhaps reversing the entire bankruptcy proceedings, the appellate court declined to vacate the Letter Agreement.

Earlier in the course of the bankruptcy, United had sought to terminate the pilots pension plan through a proceeding under §1113 of the Bankruptcy Code, which permits rejection of the executory portion of a collective bargaining agreement only with approval of the bankruptcy judge. The bankruptcy court refused to appoint a representative to those negotiations for retired pilots. United withdrew its §1113 application upon receiving approval of the Letter Agreement. As the §1113 process was aborted, the appellate court reviewed exclusion of the retired pilots from that process only as interlocutory to the order relating to the Letter Agreement.

Although United then proceeded toward voluntary termination of the pilots plan, the PBGC intervened with an involuntary plan termination. The bankruptcy court's approval of the PBGC action currently remains on appeal.

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