Pension Benefit Guaranty Corporation v. LTV Corporation

PETITIONER:Pension Benefit Guaranty Corporation
RESPONDENT:LTV Corporation
LOCATION:Jimmy Swaggart Ministries

DOCKET NO.: 89-390
DECIDED BY: Rehnquist Court (1988-1990)
LOWER COURT: United States Court of Appeals for the Second Circuit

CITATION: 496 US 633 (1990)
ARGUED: Feb 27, 1990
DECIDED: Jun 18, 1990

ADVOCATES:
Carol Connor Flowe – on behalf of the Petitioner
Lewis B. Kaden – on behalf of the Respondents

Facts of the case

Question

Audio Transcription for Oral Argument – February 27, 1990 in Pension Benefit Guaranty Corporation v. LTV Corporation

William H. Rehnquist:

We’ll hear argument now in No. 89-390, Pension Benefit Guaranty Corporation v. LTV Corporation.

Ms. Flowe.

Carol Connor Flowe:

Thank you, Mr. Chief Justice, and may it please the Court:

This case concerns PBGC’s efforts to protect the integrity of the government insurance program that insures the pensions of more than 30 million American workers.

At issue is the scope of the agency’s statutory authority to restore a terminated pension plan.

I will discuss how the language of the statute, its legislative history, and PBGC’s policy considerations each support its use of that statutory authority in this case.

We begin, of course, with the language of the statute itself.

In Section 4047 Congress authorized PBGC to restore a terminated pension plan and I quote,

“In any case in which the corporation. “

that is, the PBGC,

“determines such action to be appropriate and consistent with its duties under Title IV of ERISA. “

Now, Congress could have said that PBGC could restore a terminated pension plan only if an employer’s financial condition had improved.

Or it could have said that PBGC could restore a plan where it could persuade a court that doing so was in the public interest.

But it didn’t.

What Congress said was… was that PBGC should make this determination, and it limited our discretion only by requiring that we exercise it appropriately and consistently with our statutory duties.

The court of appeals slid right by the statutory language though and went immediately to the legislative history.

And then, rather than examining the legislative history to see whether there was a clearly expressed legislative intent contrary to PBGC’s action in this case, the court of appeals turned the analysis on its head.

The court of appeals searched the legislative materials for an explicit reference to the use of restoration that PBGC made here.

Not surprisingly, it found none because the legislative history confirms what the plain language of the statute says, that Congress intended PBGC to determine when its restoration authority was to be used.

This legislative history is sparse, but it’s straightforward.

It says that Congress intended PBGC to restore a plan if a plan or employer had a favorable reversal of business trends or if, and again I quote,

“some other factor made termination no longer advisable. “

The court of appeals simply disregarded this final phrase and focused instead on the one example given… a favorable reversal of business trends.

The court then concluded that was the only circumstance under which the agency could restore a terminated pension plan.

That approach was contrary to this Court’s teachings in Chevron and its progeny.

And it also–

John Paul Stevens:

May I interrupt you for a moment?

It would help me if I understood why the termination decision was reversed in this case.

Carol Connor Flowe:

–There were two reasons, Justice Stevens.

The first reason was because LTV adopted follow-on plans, new pension arrangements which, when combined with the insurance payments that PBGC was paying under these terminated plans, effectively continued the terminated plan as if there had been no termination but–

John Paul Stevens:

Well… this is what I really need some help on because the briefs somehow gloss over the facts, just as you did in starting out with the statute.

What does that mean?

Does that mean that someone who was getting a pension under the old plan that’s being financed now by your client could get a pension under the new plan too?

Carol Connor Flowe:

–In effect, yes, Justice Stevens.

What it means is that–

John Paul Stevens:

Well, how could that be?

If they… if they were already returned from a closed plan or something like that, how could they earn a right to a new pension under the… under this follow-up plan?

I don’t understand it.

Carol Connor Flowe:

–Under the statutory scheme that Congress established here, PBGC doesn’t pay all benefits under an underfunded terminated plan.

Congress specified that we would pay only certain basic benefits, and even those are limited by a statutory maximum.

The follow-on plan makes up the nonguaranteed, the non-insured payments that PBGC does not pay.

It also allows active–

John Paul Stevens:

Let me just be sure I understand–

Carol Connor Flowe:

–Sure.

John Paul Stevens:

–just to get an example.

Carol Connor Flowe:

Sure.

John Paul Stevens:

In other words, if there’s a closed plant, the people qualified for retirement benefits because the plant was closed and they lost their jobs and they were getting pensions and then they… you terminate the plan so PBGC pays part of the benefits and the LTV finances the balance.

Is that how it worked?

Carol Connor Flowe:

That’s correct.

John Paul Stevens:

And now those same people will get benefits under the follow-up plan?

Carol Connor Flowe:

That’s correct.

They will–

John Paul Stevens:

Well, how can they earn benefits if they’ve already retired?

That’s what puzzled me.

Carol Connor Flowe:

–Well, suppose… let’s take a numerical example and suppose we have a retiree who was receiving a pension of, let’s say, $800 a month–

John Paul Stevens:

Right.

Carol Connor Flowe:

–under the pension plan that terminates.

Because of our various statutory limitations, we may pay only $600–

John Paul Stevens:

Right.

Carol Connor Flowe:

–of that $800.

Carol Connor Flowe:

The follow-on plan would pay the remaining $200 or some substantial portion of that remaining $200.

John Paul Stevens:

I see.

And the follow-up plan covers people who have already retired and are receiving benefits under the old plan.

Carol Connor Flowe:

It covers those people–

John Paul Stevens:

I see.

Carol Connor Flowe:

–and it also covers active workers who might have had a vested benefit under the old plan in a certain amount.

But once the old plan terminated, that employee was no longer entitled to continue earning service for additional benefits under that old plan.

John Paul Stevens:

But you had to pay his vested?

Carol Connor Flowe:

That’s correct, Justice White.

We would pay the amount of the benefit that was accrued and vested as of the date of termination.

The follow-on plan would allow that same employee to continue earning additional benefits and to continue earning service for purposes of becoming eligible for new benefits.

John Paul Stevens:

Well, this is what I don’t understand.

How can an employee who has already retired, continue to earn benefits?

He’s retired.

He’s no longer working.

Carol Connor Flowe:

Well, I’m now referring to active employees.

The follow-on plan covers–

John Paul Stevens:

But then if they’re active employees, they aren’t getting benefits under the old plan.

Aren’t they either working or not working?

Carol Connor Flowe:

–The retirees would be getting benefits under the old plan.

John Paul Stevens:

Right.

Carol Connor Flowe:

The active–

Antonin Scalia:

And not earning benefits under any new plan.

Carol Connor Flowe:

–And… and receiving benefits from the new plan.

Antonin Scalia:

I see.

Carol Connor Flowe:

To make their… to make them whole, substantially whole.

The active employees have earned some portion of a benefit under the old plan.

Antonin Scalia:

Yeah, but you don’t pay them anything because they didn’t have a vested benefit and they haven’t retired yet.

Carol Connor Flowe:

Well, if they… under most plans, they would have earned already a vested benefit, provided they had sufficient service.

If they… if they have more than… than ten years of service under old law or five under new law, they will have a vested benefit–

Antonin Scalia:

I see.

Carol Connor Flowe:

–and they are entitled to receive that vested accrued benefit… active employees now… once they reach–

Antonin Scalia:

When they do–

Carol Connor Flowe:

–their normal retirement age.

Antonin Scalia:

–I see.

Carol Connor Flowe:

So, they do… they do have an earned benefit under the old plan, but it’s frozen as of the date of termination.

The follow-on plan picks up from that frozen date and let’s them continue earning additional benefits, continue building on that insured benefit as if the old plan had not terminated, as if it were continuing on.

John Paul Stevens:

And so that when they retire in the future, the part that had vested you’re responsible for, and the balance they will pay.

Carol Connor Flowe:

From the follow-on plan.

John Paul Stevens:

All right.

Carol Connor Flowe:

That’s correct.

Antonin Scalia:

When… when you say that the PBGC pays vested benefits, you don’t necessarily mean up to the full amount of the vested benefit?

You still mean subject to whatever limitations there are, or are there no limitations on the vested benefits?

Carol Connor Flowe:

It’s rather complicated, Justice Scalia, but in most cases we would pay the full vested benefit at the time that employee reaches his retirement age.

Antonin Scalia:

Right.

Carol Connor Flowe:

There may be cases where–

Antonin Scalia:

Nothing–

Carol Connor Flowe:

–even that would be limited.

Antonin Scalia:

–Nothing vests but what PBGC would cover, by and large?

Carol Connor Flowe:

As a matter of fact, that’s largely true.

There are cases where, for example, these shutdown benefits–

Antonin Scalia:

Right.

Carol Connor Flowe:

–if an employee is already… or a retiree… is already eligible for a shutdown benefit at the time that a plan terminates, he will not receive the full amount of that benefit, even though it might otherwise be vested, because it will exceed the amount that we would guarantee by some fairly substantial amount.

Antonin Scalia:

Okay.

And what you just described to Justice Stevens as being the consequence is only the consequence because of the particular deal struck by the union with the corporation here.

Conceivably, the union could have said, listen people that are already retired, tough luck, we’ll… we’ll let them just get what… what the Pension Benefit Corporation pays them.

But for workers who are currently working, we’ll supplement their salaries.

It could be done that way.

Carol Connor Flowe:

That’s correct.

It could be done that way.

Antonin Scalia:

But in this case it was both, both the people already retired and the ones that continued to work?

Carol Connor Flowe:

That’s absolutely right.

The PBGC’s follow-on plan policy was designed to deal with this situation.

These limitations we’ve just been discussing, these things that employees lose when an underfunded plan terminates, act as sort of a risk-sharing mechanism.

It means… they mean that when an underfunded plan terminates, employees share the risk of that termination with the PBGC.

And that aligns their interests with PBGC’s and against termination.

If an employee stands to lose benefits when his plan terminates, then he’s going to resist termination, and he’s also going to pressure his employer to fund the plan better in the first instance.

Because follow-on plans eliminate these losses that Congress built into the statutory scheme, they also eliminate the disincentive for termination.

Now, PBGC has three duties under this statutory scheme.

We have a duty to encourage the continuation of plans.

Stated differently, to discourage the termination of plans.

Obviously, to the extent that we prohibit the vitiation of these risk-sharing features of the statutory scheme we discourage unwarranted terminations.

We also have a duty to ensure the timely and uninterrupted payment of benefits in plans that do in fact terminate.

Again, by protecting the insurance program against unwarranted terminations, we also fulfill that statutory duty.

And finally, we have a duty to maintain our premiums at the lowest possible level consistent with these other duties.

Here, too, if we can discourage unwarranted and unnecessary terminations, we can keep our premiums as low as possible.

The follow-on plan policy grew out of a need to do all of these things… to discourage unwarranted terminations so as to protect the program; to make sure that these disincentives to termination from the standpoint of employees and their unions continue to be maintained in the statutory scheme.

Sandra Day O’Connor:

Ms. Flowe, may I ask you whether the benefit… Pension Benefit Guaranty Corporation takes the position that it can order restoration based solely on the existence… coming into existence of what it thinks is an abusive follow-on plan or must it also include in the calculus whether the company can… can financially absorb the cost on restoration?

Carol Connor Flowe:

Justice O’Connor, the grant of authority under Section 4047 is unusually broad.

However,… and… and it is the agency’s position that follow-on plan abuse alone is a sufficient basis under that provision–

Sandra Day O’Connor:

Even though the company clearly cannot pay the costs, so that it’s going to result in some kind of immediate retermination action one way or another?

Carol Connor Flowe:

–Well, whether the company can pay or not, first of all, does not necessarily equate with the immediate retermination.

Here, for example, there was no significant risk at all of any immediate retermination because the plan–

Sandra Day O’Connor:

Well, I want to understand the position, and the position you take is it makes absolutely no difference what their economic condition is, that if there is an agreement to what you call an abusive follow-on plan, you can order restoration.

Carol Connor Flowe:

–At least where, as here, there is no significant risk that doing so would be futile because there might be an immediate retermination.

Sandra Day O’Connor:

Well, that just doesn’t answer the question at all.

Now, here there was a determination that three things existed and they were… all three were relied on.

Were they not?

Carol Connor Flowe:

We did have three grounds here.

The third ground is… is subsumed within the first two.

Carol Connor Flowe:

But we did also make a determination that restoration was warranted here because of the company’s improved financial circumstances.

Sandra Day O’Connor:

Well, what if we thought that that determination was not adequately supported on the record?

Does that mean it would have to be remanded so that the agency could think about it again?

Carol Connor Flowe:

I think not, Justice O’Connor.

I believe that the Court could reverse the court of appeals on the follow-on abuse question because there was no significant chance of… of immediate retermination here.

And please let me explain why.

When these plans were restored, they had then sufficient assets to continue for at least several additional years without any further contributions whatsoever.

In addition, the agency did make a determination here that the company could afford to fund these plans at least for the foreseeable future.

That finding was not seriously challenged by the court of appeals.

It simply believed that it was the wrong test, that we had to make a finding of long-term ability to afford.

Sandra Day O’Connor:

Well, what standard for a financial improvement did the PBGC apply to evaluate the situation?

Carol Connor Flowe:

On the separate ground of the improved financial circumstances warranting restoration, what PBGC looked at was the factors that had led it to determine these plans in the first instance.

There were several financial factors that caused PBGC to exercise its discretion under Section 4042 of ERISA to terminate these plans to protect the insurance program against the risk of unreasonably large losses.

LTV’s financial condition did improve over the next several months leading each of those factors to cease to exist.

That fact is really undisputed in this case because those factors–

Sandra Day O’Connor:

Did you consider whether the tax waivers that had been granted by IRS in the past would be extended in the future?

Carol Connor Flowe:

–We did, Your Honor, assume that in making our determination that they had the ability to fund at least for the short-term.

We did make an assumption that the IRS would grant the company waivers of the–

Sandra Day O’Connor:

If that assumption were unwarranted would the finding be unwarranted?

Carol Connor Flowe:

–No, Your Honor, it would not, because if that assumption were unwarranted, their ongoing contribution obligation would have been a smaller amount.

Those past due contributions, rather than being amortized into their current contribution obligation, would have been paid as a part of their plan of reorganization a few years down the road.

That was actually a conservative assumption that made the amount of their contribution obligation slightly higher.

But in any event, the assumption–

Anthony M. Kennedy:

Well, if… if there were a waiver, would that affect whether or not the past due obligation was a pre-petition or a post-petition debt?

Carol Connor Flowe:

–In our view, Justice Kennedy, a… once there was a waiver granted the amount of the amortization payment which was then… which would then have been due as a part of the ongoing contribution, would have been entitled to administrative expense treatment.

Anthony M. Kennedy:

So it would not be a pre-petition debt then?

Carol Connor Flowe:

That’s correct.

Anthony M. Kennedy:

If it… and if there were no waiver, would it be a pre-petition debt as to the ’84-’85?

Carol Connor Flowe:

At least as to the ’84-’85 contributions, those would have continued to have been treated as pre-petition debts.

Anthony M. Kennedy:

Are there… are there circuit court authorities on that point to back you up?

Carol Connor Flowe:

There is not.

That is a question that has yet to be addressed by the courts of appeals.

Byron R. White:

So far you’ve argued this case as though there had never been a bankruptcy or any… any action by a bankruptcy court.

Does it make any difference to you?

Carol Connor Flowe:

We think not, Justice White.

Certainly, we considered the fact that LTV was in bankruptcy here and in fact we first objected to these follow-on plans in a bankruptcy court proceeding.

Byron R. White:

What was your standing in that proceeding?

Carol Connor Flowe:

We were simply–

Byron R. White:

As a creditor or what?

No?

Carol Connor Flowe:

–We were… we were in fact a creditor, but we were there exercising our regulatory authority to say that these follow-on plans–

Byron R. White:

Well, why didn’t you appeal the approval of the plan?

Carol Connor Flowe:

–Well, we did–

Byron R. White:

Of the follow-up plan?

Carol Connor Flowe:

–Well, we did in fact appeal.

And I might add that the bankruptcy court did not reach the merits of our objections.

The bankruptcy court said instead that it wasn’t appropriate for him to consider the regulatory objections we were making and that if we thought we had some administrative options, we should go exercise those.

We, nevertheless, appealed his refusal to consider the merits of that matter.

LTV moved to dismiss our appeal on the grounds that it was interlocutory.

And while this… at the same time, we were also considering the possibility of using our Section 4047 authority.

Once we had, in fact, decided to use our Section 4047 authority, we then dismissed that appeal–

Byron R. White:

So the bankruptcy court–

Carol Connor Flowe:

–before LTV’s motion was decided.

Byron R. White:

–The bankruptcy court really said, it’s none of my business.

Is that… is that it?

Carol Connor Flowe:

That’s, in effect, what he said.

Byron R. White:

And what were the… why did he even approve the plan?

Did he think… he just thought that it was… it was a… they had the money to do it, and it was a fair thing to do?

Is that… is that it?

Carol Connor Flowe:

He was approving… he wasn’t so much approving the plans as he was approving the expenditure of money to fund the plan.

Byron R. White:

That’s… yeah–

Carol Connor Flowe:

And that was in the context of LTV’s seeking approval of–

Byron R. White:

–Did the creditors object to this plan?

Carol Connor Flowe:

–They did not.

They did not.

There were no objections other than PBGC’s to the funding of these follow-on plans in the context of that case.

William H. Rehnquist:

So this is really the approval of a expenditure of funds to meet corporate obligations?

Carol Connor Flowe:

That’s correct.

And the… the bankruptcy court made the… the finding that it was appropriate within the context of the reorganization to… for LTV to enter into the collective bargaining agreement and to fund these follow-on plans under that collective bargaining.

Byron R. White:

Why would your restoring the old plan cost the company more money?

Carol Connor Flowe:

The… because with the… once they terminated the old plan, PBGC takes over all of the unfunded liabilities–

Byron R. White:

I’ve got you.

Carol Connor Flowe:

–in those plans and–

Byron R. White:

And when you restore it, you… you get out from under that?

Carol Connor Flowe:

–Precisely, and–

Byron R. White:

Any money you’ve paid out is gone, I guess, but any continuing–

Carol Connor Flowe:

–Well, as a matter of fact, under Section 4047 these plans are restored to their pretermination status.

That is, they’re restored as if they had never been terminated in the first instance, so that we should be able to get back those monies that we have paid out.

John Paul Stevens:

–Yes, but even if… even if you had not restored the plan, would you not be entitled as a subrogee to get back your money, if they are financially sound?

Carol Connor Flowe:

We do have a claim under the statute for 75… up to 75 percent of the unfunded guaranteed benefits.

John Paul Stevens:

Well, why wouldn’t you be entitled to 100 cents on the dollar of the money that you had to advance, if they are financially sound?

Carol Connor Flowe:

If they were financially sound and were able to pay each and ever creditor 100 cent on the dollar, we would get only, even then, 75 percent because that is the amount of the statutory liability under the law in effect when these pension plans terminated.

Congress only gave–

John Paul Stevens:

I thought that was the amount you had to pay, but that’s the amount you can recover.

Only 75 percent of what you pay out?

Carol Connor Flowe:

–Exactly.

John Paul Stevens:

I see.

Carol Connor Flowe:

Exactly.

Under… under that employer liability provision in the statute.

So that, in any event, we… we take a very large loss.

Carol Connor Flowe:

And that assumes, of course, that we could collect 100 cents on the dollar on our claim.

And, as we explain in our brief, our historical experience has been very, very substantially less than that in terms of what we are able to recover.

John Paul Stevens:

Well, but that’s… I know, but those are different companies.

The part of your… the premise of the restoration is that this is a financially sound company, isn’t it?

Carol Connor Flowe:

Well, that’s true.

And… and–

John Paul Stevens:

So you should get your 75 cents on the dollar back… eventually.

Carol Connor Flowe:

–One would hope.

John Paul Stevens:

Well, if they’re… if you’re not, then apparently… maybe one of the grounds for… there’s some tension between your position you can’t get your money back that way and your position that they are financially able to handle the plan.

Carol Connor Flowe:

Well, not necessarily, Your Honor, because our claim would be an immediate lump sum liquidated claim for the entire amount of that underfunding, whereas the company’s obligation under restored ongoing plan is only to make each year the statutory minimum funding obligation, which in this case is more like $200 to $225 to $250 million a year as compared to our claim, which is for about $2 billion.

So that, to say that they can’t… that they may not be able to pay 100 cents on the dollar on a $2 billion dollar claim is different from saying they can afford a $200 million a year funding obligation.

John Paul Stevens:

Well, you have a $2 billion claim but have you… you have not paid out that much money, have you?

Carol Connor Flowe:

We do… we have not at this junction paid out.

John Paul Stevens:

And that’s the total amount you are liable for?

Carol Connor Flowe:

That’s the present value of the liabilities, the unfunded liabilities–

John Paul Stevens:

Yeah.

Carol Connor Flowe:

–in that plan.

But the way the statute is set up is that… that… those… that stream of future liabilities is reduced to a present value for purposes of the liability claim PBGC asserts against an employer that terminates an underfunded plan.

Anthony M. Kennedy:

But during the time you had the plan, did you have the… did you have the discretion to use the assets to pay current obligations or to use your own funds?

Carol Connor Flowe:

Administratively, PBGC pays a part of benefits under terminated plans from the assets of the plan it takes over and it pays another part from the premium income that we receive from the premiums that the statute requires us to cover–

Anthony M. Kennedy:

The statute says that when you restore the plan you turn over… back to the company any remaining assets and liabilities.

So I take it that you then have a separate claim in the bankruptcy court for the liabilities that you’ve already paid, and they’re no longer outstanding.

Carol Connor Flowe:

–That’s correct, Justice Kennedy.

We would return over to them what’s left and also what’s left of the liabilities because obviously during the interim, while this litigation has been proceeding, some of those liabilities have been satisfied as well by our payment of benefits.

So there would be fewer liabilities returned to them also.

Antonin Scalia:

Ms. Flowe, do… do… do I under your position correctly to be that it really doesn’t matter about the tax waiver and it doesn’t matter how these matters would be treated in the bankruptcy, even assuming the worst, that these plans would still have had enough funds in them for a couple of years to continue in existence?

Is that… is that true?

Carol Connor Flowe:

That’s correct, Justice Scalia.

Without a penny of further contributions these plans would have survived at… from the date of restoration for several years.

And, of course, at that time it might well have been that the company would have been out of bankruptcy by the time that the plans came anywhere close to running out of money.

Antonin Scalia:

You started off earlier by saying there were two reasons why the agency restored and you have been discussing the first, and the second one was the change in the financial situation.

Were those two reasons independent or… or where they alternative… or… or cumulative?

Carol Connor Flowe:

They were independent grounds.

We believe that follow-on plan abuse alone is a sufficient ground under the statute, under this broad grant of authority, provided that it will–

Antonin Scalia:

Oh, it may be.

I’m not asking whether it may be sufficient in and of itself.

I’m saying did the agency express that to be an independent ground or… or was it the combination of the two?

Carol Connor Flowe:

–In this case, it was an independent ground for the restoration decision.

Sandra Day O’Connor:

Well, you answered my question just the opposite when I asked you.

You said that the company… the Pension Benefit Guaranty Corporation relied on both grounds here.

Carol Connor Flowe:

Well, we did… I… I’m sorry, Justice O’Connor, I must have misunderstood your question.

Sandra Day O’Connor:

So which is it?

Carol Connor Flowe:

We had–

Sandra Day O’Connor:

Let’s try to get to the bottom of it.

Did you rely on both grounds or not?

Carol Connor Flowe:

–We had two grounds.

Each of them standing alone would have justified our decision in this case.

We believed each of those grounds were an independent basis standing alone for restoration in this case.

Sandra Day O’Connor:

Was that expressed any place in the record or in the language of the order?

Is that apparent or is that something you’re just telling us now?

Carol Connor Flowe:

I believe it is probably not apparent from the face of the order.

The order just says we are restoring your plans for these reasons, one, two, three, without discussing whether they each stand alone or not.

If there are no further questions, I’d like to reserve the balance of my time.

William H. Rehnquist:

Very well, Ms. Flowe.

Mr. Kaden, we’ll hear from you.

Lewis B. Kaden:

Mr. Chief Justice, and may it please the Court:

Contrary to the government’s position, this case is not about the integrity of the insurance fund, nor is it about conspiracies between employers and unions to give liabilities to the government.

Our position is simply stated.

Nothing in ERISA bars the negotiation of replacement benefits after a plan termination.

And indeed, both ERISA and the policies of the Taft-Hartley Act and the Bankruptcy Code support the negotiation of those benefits.

Lewis B. Kaden:

And secondly, nothing in this record supports the conclusion of the government that LTV’s financial improvement… financial condition had improved in the few months between termination in January 1987 and restoration that September.

In our view, the question–

William H. Rehnquist:

Do you… Mr. Kaden, you say then that even the abuse of follow-up… follow-on plans that apparently is cited by PBGC would not be a basis for restoration?

Lewis B. Kaden:

–Should not, in the absence of evidence of financial improvement, be a basis for restoration, and we will… we will try to develop that through an examination of both of ERISA and of the competing policies of these other statutes.

The question in this case… what this case really involves is a question whether this government agency for restoring a pension plan for the first time in its brief history met the requirements of the Administrative Procedure Act.

Did they develop a record adequate for review?

Did they have an ascertainable standard?

Did they proceed by reasoned analysis?

Did they have evidence to support their assumptions?

Did they consider each relevant factor?

William H. Rehnquist:

Will you find all of those requirements in the Administrative Procedure Act?

Lewis B. Kaden:

Yes.

As… as this Court has said in Overton Park and State Farm, in reviewing informal adjudication, it is the Court’s responsibility to engage in a thorough probing review to determine the rationality–

William H. Rehnquist:

And you say–

Lewis B. Kaden:

–of the agency’s decision.

William H. Rehnquist:

–And you infer from that all those four or five things that you just ticked off?

Lewis B. Kaden:

I think those four or five elements are ticked off in this Court’s opinion in State Farm.

William H. Rehnquist:

As prerequisites?

Lewis B. Kaden:

As… as the elements of rationality.

In other words, if you don’t an ascertainable, comprehensible standard, and you don’t have any reasoned analysis, and you haven’t considered relevant factors… that is essentially a quote from this Court’s opinion in… in State Farm… when you add it all up, what you don’t have is a record adequate for review.

Now, in our view, in this case, this agency had a batting average of zero on those requirements.

Let me try to explain where LTV was–

John Paul Stevens:

Let me just ask this, Mr. Kaden, if it’s… if it’s true… I don’t know if it is or not… as matter a law that a follow-up plan such as I think I understand now went into a place and if that’s a sufficient reason for restoration, isn’t the record sufficient to establish those facts?

Lewis B. Kaden:

–If… if these follow-on plans met a test of abuse, and if abuse were a grounds all by itself in the absence of financial evidence–

John Paul Stevens:

Right.

Lewis B. Kaden:

–for restoring the plans, then that might be the case.

I think as… as we argue, that simply cannot be the case when one looks both at the structure of ERISA and the competing policies of these other statutes.

Byron R. White:

Well, what does it take in addition to just… just having a follow-up plan to be an abusive one?

Lewis B. Kaden:

It… it may be possible, as the government suggests, that one can imagine a circumstance in which an employer and a union got together and said we’re going to push our liability off on the government and we’re going to create another defined benefit plan subject to the government’s guarantee.

That would, in effect, be a fraudulent termination perhaps–

John Paul Stevens:

Yes, well, I… I–

Lewis B. Kaden:

–and that might be abusive.

Byron R. White:

–I take it that the agency keeps referring to an abusive follow-up plan.

Lewis B. Kaden:

That’s right.

Perhaps there is such a thing.

My… my suggestion, Justice White, is that didn’t happen here.

Byron R. White:

Well, and if… if it was an abusive… if the claim is that it was abusive, is there a record to establish that?

Lewis B. Kaden:

Not in this case.

In this case what the record shows unequivocally, is that this agency made a determination in December 1986, acted on it in January 1987, that LTV in bankruptcy could not both reorganize and afford these pension plans.

Now, the government didn’t go to the Department of Labor, which has the power to enforce contributions, and say try to get some money from LTV.

Instead, they terminated the plans.

Upon termination–

Byron R. White:

On… on… on request?

Lewis B. Kaden:

–Not upon… they… they asked us whether we intended to fund the plans.

Byron R. White:

Yes.

Lewis B. Kaden:

And we said no, under the law we cannot fund these pre-petition obligations, nor do we have the capacity to.

Byron R. White:

So you… and so it was terminated then?

Lewis B. Kaden:

And so it was terminated.

LTV, following termination, found itself in this position… 8,000 retirees had their income reduced from approximately $800 a month to $400 a month.

An active worker with 29-1/2 years of service, counting the days until early retirement at age 30, was out of luck.

Under their limitations, he now had to wait until he hit age 62 for a regular retirement.

An employee disabled on the job was out of disability insurance.

A spouse whose husband died on the job had no more spousal life insurance.

In response to those hardships, as well as a strike threat by the steelworkers–

John Paul Stevens:

Yes, but, Mr. Kaden, if I understand your opponent, they don’t object to those feature of the plan.

Lewis B. Kaden:

–Oh, no.

John Paul Stevens:

They object to the features that they’re… they’re helping to finance.

Lewis B. Kaden:

Indeed, they do.

Making up that difference between the $400 and the $800 for a shutdown victim, they object to.

Making up the 30 and out, the early retirement option for that 29.5-year employee, they object to.

Lewis B. Kaden:

That’s part of their abuse policy.

John Paul Stevens:

Well, I think their abuse policy is based upon the proposition that it would seem a very strange intent for the Federal Government to allow your company to compete with other companies in the same industry who have to pay the entire pension benefits for your company to be able to give its employees the same benefits and have the taxpayer fund… fund 85 percent of them.

Lewis B. Kaden:

Well, of course, Your Honor, it’s the premium payer.

But the fact is that they had to make a decision whether to exercise their termination power.

LTV then had to make a decision how to respond to strike threat, how to negotiate a labor contract pursuant to the Taft-Hartley Act and how to respond most significantly to a lawsuit brought by the steelworkers to enforce these benefit promises.

John Paul Stevens:

That’s very good and… and it seems to me the agency gave you a good… a good tool to respond to the strike threat by saying, look, if I give you these benefits, we’re going to be back in the soup because the… because the fund is not going to continue to fund the 85 percent.

Lewis B. Kaden:

That… unfortunately, in the position that LTV found itself, that was not an effective answer.

The… the company did not want to spend $70 million on replacement benefits.

It had to because of the existence of the lawsuit to enforce those benefit promises.

Anthony M. Kennedy:

Well, what difference does that… what difference does that make as to whether or not there’s an abuse?

There’s no scienter requirement, is there, here?

You postulated that at the outset that LTV couldn’t get together with the union and say let’s shove off these base premium costs on the employer.

But that’s exactly what’s happened here.

Isn’t the Pension Benefit Guaranty Corporation entitled to consider the effect quite regardless of the intent?

Lewis B. Kaden:

Not… not in the absence of evidence of financial improvement.

But the point is–

Anthony M. Kennedy:

Well, no, no.

We’re just talking about whether the… the definition of an abuse.

Lewis B. Kaden:

–The definition of abuse has to include meeting your contractual obligations.

In this case what the labor contract promised were these benefits.

It didn’t promise a pension plan subject to the PBGC’s termination power.

It said, when you hit 30 years of service, you get this benefit, or if you are victim of shutdown, you get this benefit.

The PBGC itself had gone to the Third Circuit and said that contractual entitlement survives and it is enforceable after termination.

That’s the Heppenstall case.

The steelworkers brought a Heppenstall lawsuit against us.

We had to contend with that.

We had very little legal defense, assuming that the PBGC’s position and the Third Circuit’s position was right.

William H. Rehnquist:

Where… in what circuit where you litigating?

Lewis B. Kaden:

We were litigating in the Second Circuit.

William H. Rehnquist:

Had the Second Circuit decided the question?

Lewis B. Kaden:

Second Circuit had not had an occasion, but our opinion was that that was a sound claim because, indeed, the contract has a life separate and apart from the mechanism of funding that constitutes the pension plan.

William H. Rehnquist:

And you… and you’re saying that was a justification for fobbing off 85 percent of your liabilities under the other premium payers from other companies?

Lewis B. Kaden:

We… we couldn’t fob off those liabilities.

We… we wanted to but the problem after LTV filed bankruptcy is that the provisions of ERISA gave us a full stop… a sharp red light against a voluntary termination.

William H. Rehnquist:

But what is the–

Lewis B. Kaden:

In the absence of the steelworkers–

Anthony M. Kennedy:

–But what is the difference whether or not you had to do and whether you chose to do it?

The effect on the PBGC, the effect on other premium payers, the effect on the integrity of this act is the same.

Lewis B. Kaden:

–It depends on the structure of the statute and whether Congress ever contemplated this theory of abuse.

The fact is, if you look at the structure of both the determination provisions and the restoration provision, if you look at the legislative history, if you look at the integrity of this statute, what you see is restoration as a device for dealing with financial turnaround.

Financial turnaround and other financial factors we think is the proper way of reading that legislative history.

When you look at the subsequent legislative history, and we understand the dangers of looking at that, as the Chief Justice said in the County of Washington case, it is perilous, but not wholly irrelevant.

In this case, they went to Congress and asked for a bar against replacement benefits except pursuant to their standards.

Everyone reflected in those debates that it was not the status quo in the law.

One committee gave them that provision.

Three committees rejected it.

And the Congress in 1987 rejected it.

Further–

Antonin Scalia:

Maybe… maybe the members of the legislature didn’t want to vote for that in particular but they were perfectly content to vote to… to let the agency use its judgment, as the text of the Act seems–

Lewis B. Kaden:

–Well, let’s–

Antonin Scalia:

–they did vote when… when it was enacted.

Lewis B. Kaden:

–Well, let’s look at the question of how the agency exercised its judgment.

As I indicate, I think the structure of the act itself makes clear that the policy… that the negotiation of replacement benefits has nothing to do with the restoration power and is not abusive of the statute.

But if there’s any doubt about that, let’s look at the conflicting mandates of other important Federal statutes, and let’s start with the Taft-Hartley Act.

Section 8(d) of the labor law, as you know, says that an employer must bargain over wages, hours, terms and conditions of employment.

We know that retirement benefits are within that circle of mandatory bargaining.

We know, too, from this Court’s decision in the Insurance Agents case and others, that it is a serious act to circumscribe the ambit of mandatory bargain.

The Solicitor General says, well, of course, we don’t permit wages to be paid in cocaine.

That’s because their is an explicit provision of the Federal criminal law.

But we don’t permit a government agency, either this one or the IRS or anyone else, to go about regulating the rules that apply to the substantive outcomes of bargaining contrary to the provisions of the Taft-Hartley Act.

Lewis B. Kaden:

The Bankruptcy Code in Section 1113 also provides that a debtor in possession cannot ignore… cannot escape the provisions of his labor contract unless he follows particular procedures that could not be followed in this case without risking a destructive strike.

Antonin Scalia:

But none of this was literally impaired.

You… you were entitled to adhere to the provisions of the contract that you had negotiated to.

The only thing is who is going to pay for the whole thing?

This agency didn’t prevent you from negotiating a contract, is not preventing you from abiding by the contract.

The only question is whether the fund is going to foot the bill.

That’s all.

Lewis B. Kaden:

On, no.

Indeed, we did.

No one is asking them to pay the cost of the replacement benefits.

We were prepared to pay that $70 million ourselves and we negotiated concessions of $50 million to offset that cost.

And the bankruptcy court, as Justice White indicated, approved that in order to preserve the estate for… for reorganization.

But it was essential for us to negotiate that in the free arena of collective bargaining, as required by those laws.

This agency’s abuse policy says when you negotiate that replacement benefit for retirees thou shalt not obey the principle of seniority.

Now, in our labor history, the principle of seniority is an important one.

It’s recognized explicitly in the Military Service Act and the Veterans Act.

It’s recognized in their own statute.

Byron R. White:

Now, what would… what would the… what would the… what would you have to pay that you weren’t going to pay… when they reinstated the old plan, what extra obligation came onto LTV?

Lewis B. Kaden:

If they were successful in reinstating the plan, two things might happen, and it turns on whether the contributions are owing or not by a debtor in possession, whether they are pre-petition obligations or not.

There’s no question that with the passage of time the unfunded liability in these plans is now over $3 billion, and if they were returned to us today, the question is do we have to make those contributions?

If we do, our creditors would be forced under the Bankruptcy Code to evaluate whether liquidation was better than paying that bill.

In liquidation, the plans would automatically be reterminated under Section 4041 of ERISA, under the voluntary termination standards.

By contrast, if we didn’t have to pay those contributions because they were pre-petition obligations, as the Second Circuit noted, then the largest of these plans would have to be reterminated immediately because it has no assets today, and that is clear if one calculates out from the… from the record.

So, in either event, it depends on whether it’s a pre-petition obligation, but we view it as a futile act.

But it does one thing.

It changes their claim in bankruptcy from $2 billion to $3 billion to the detriment of other creditors and to the detriment of the principle of uniformity of treatment that is part of the Bankruptcy Code.

The result of this manipulation, if they’re able to do it, is that they get a $3 billion claim.

Today they have a $2 billion claim.

Those large claims get satisfied in a reorganization, if it can be reorganized, only they get more and everyone else, all other creditors get less.

And the result is they’ve used the restoration procedure to manipulate the Bankruptcy Code.

Lewis B. Kaden:

We don’t think Congress, in trying to sort out the tensions between ERISA, the Bankruptcy Code and the Labor Act ever contemplated that kind of manipulation.

Let me turn now to the financial–

Sandra Day O’Connor:

And why is it that it increases what they can collect from 2 to 3 billion?

Lewis B. Kaden:

–If the plan were restored today and then had to be immediately reterminated because it was out of assets or because the bankruptcy court found that a new termination was necessary to avoid liquidation, the only consequence of that successful restoration would be to manipulate the recoveries in that… in that fashion.

Sandra Day O’Connor:

Well, why–

Lewis B. Kaden:

We don’t think the harmonizing of those three statutes could have intended that result.

William H. Rehnquist:

–Why, Mr. Kaden, does it go from $2 million to $3 million?

I mean, in terms of figures.

Lewis B. Kaden:

For two reasons.

One, in the intervening time between the time they restored… they tried to restore these plans or they terminated these plans and today, the law changed to give them 100 percent claim instead of a 75 percent claim.

And, two, over the course of time benefits have been paid out, no contributions go in, some of the liabilities have been reduced, but other liabilities accrue.

William H. Rehnquist:

So this is money they have paid out.

Lewis B. Kaden:

No, it’s not money they’ve paid out.

It’s a… it’s a widening gap.

When you measure the liability to these plans, it’s the present value of all the liability year by year over time.

And between 1987 and January when the plans were terminated and today, two things have happened to cause that gap to widen.

One is the accrual of more liability, as more people retire, as more people gain retirement benefits, and the second is the change in the law to give them 100 percent claim in bankruptcy as opposed to a 75 percent claim in bankruptcy.

Indeed–

William H. Rehnquist:

Well, but wouldn’t they be entitled to some increase over 2 million just by virtue of the fact of the passage of time from the–

Lewis B. Kaden:

–No, because the size of their claim on termination is fixed on the date of termination.

In other words, at the moment they terminated these plans in January 1987, assuming this Court affirms and the plans remain terminated, that claim, which is roughly $2 billion, is fixed.

That is the claim in the bankruptcy.

They are our largest creditor, and they will be satisfied in a plan of reorganization with however much they get out that process of negotiation and reorganization.

The only way they get to manipulate it is if this Court reverses and the restoration is effective and then, for the reasons that Justice O’Connor and I discussed, the plans have to be reterminated.

In that case, they will have succeeded in boosting the claim by a million dollars.

William H. Rehnquist:

–Because they subsumed the gap that’s–

Lewis B. Kaden:

Not because they subsumed the gap.

Because of the passage of time and the change of the law.

Byron R. White:

–Of course, your… the… your opposition says that there… there is no assurance that they’d have to reterminate anything.

Lewis B. Kaden:

Well, it… it… it is fact that cannot be disputed that the largest of these plans, the Jones & Laughlin hourly retirement plan, today has no assets.

Lewis B. Kaden:

It had some assets in September 1987 when they tried to return it to us.

In the absence of contributions it would predictably run out of assets and, in our view, it did some time in 1989.

So under 1341 of… of ERISA, they would have to.

They cannot leave a plan in place that has no assets to pay benefits for.

They’re obliged to terminate that, as indeed they did with our Republic salaried plan, which is not at issue in this case, in September of 1986.

Byron R. White:

What is your position as to the nature of the liabilities, the shortfall for ’84 and ’85?

Are they pre-petition debts and does that change depending on whether or not an IRS waiver is granted?

Lewis B. Kaden:

No.

They are pre-petition debts because they deal… in that case, the obligation was due pre-petition.

So even under the PBGC’s theory, as Ms. Flowe indicated, they’re pre-petition debt.

But under our theory, what you have to look at is when the obligation arose, when the service for which this liability was consideration, was provided.

And that was plainly pre-petition.

Anthony M. Kennedy:

Suppose there’s an IRS waiver?

Same?

Lewis B. Kaden:

Same.

The IRS waiver affects the pace of payment and the interest you pay on it.

It does not affect the status of the claim in the bankruptcy.

Let me turn to the… to the validity or the lack of validity in our view of the administrative record on the financial improvement point, their second ground.

Now, we would argue as… as I indicated, under the statute there is no independent abuse ground.

If you think something violates ERISA, you ought to ask a court to declare it invalid.

And in this case, if they had to… they tried eight times and eight courts said no it was not invalid.

But if they ever succeeded in showing that those replacement plans were illegal, they could be declared illegal.

They would go away.

The contract provides for severance, and that would be… and a new negotiation, and that would the end of it.

William H. Rehnquist:

You say… you say the agency has no authority under its mandate to itself determine that a plan is abusive if it can’t show that it violates some other law?

Lewis B. Kaden:

No, no, no.

If it can show that it’s abusive in violation of its own law, it can ask a court so to declare–

William H. Rehnquist:

Well, abuse–

Lewis B. Kaden:

–and the plan will disappear.

William H. Rehnquist:

–Well, do you mean it has to point to a provision of its statute?

Lewis B. Kaden:

No.

All I’m saying now is… I’m not back trying to… trying to review the… the abuse theory.

I’m simply saying that the restoration power is neither necessary nor appropriate as a remedy for abuse.

If there’s an abuse, all they have to do is say so, ask a court to confirm it.

They were in court.

They could have asked Judge Sand in the Southern District of New York on appeal from the bankruptcy court to say this was an abuse and these replacement plans were gone.

William H. Rehnquist:

Well, maybe they… maybe they–

–Well, why are they limited to that one remedy?

Lewis B. Kaden:

I’m not… I’m not suggesting that they… they are not limited to that remedy if they can show evidence of financial improvement.

What I am suggesting is the structure of the act requires that in order to return plans with all these billions of dollars of obligations you have to answer the fundamental question, which is can the company afford it?

William H. Rehnquist:

Well, it seems to me you give very little discretion to the agency and it seems to me you can read the agency’s statute quite differently than you do to give them considerably more discretion.

Lewis B. Kaden:

I… I don’t think you read 4047 differently in the context of the financial improvement provisions of the terminations standards and in the context of these competing mandates of other statutes.

William H. Rehnquist:

Well, doesn’t the very financial provision section also say other reasons?

Lewis B. Kaden:

Other factors in–

William H. Rehnquist:

Other factors?

Lewis B. Kaden:

–in the context in which appears.

I suggest, Chief Justice Rehnquist, that it is clear that that means other financial factors.

Financial turnaround is one thing that could happen.

But there are other financial changes in condition that could occur.

Without a business turnaround.

You could… you could get a pot of money if you had won a judgment somewhere and be able to afford plans that… that a year ago you could not.

Antonin Scalia:

Wouldn’t that be financial improvement?

I don’t understand that.

What other factors could be financial improvement other than financial improvement?

Lewis B. Kaden:

Well, I’m not sure.

One has to look at the structure of the statute.

But financial–

Antonin Scalia:

I’m trying to, and I–

Lewis B. Kaden:

–No, my–

Antonin Scalia:

–I think another factor means a factor other than financial improvement.

Lewis B. Kaden:

–No, because the phrase is financial turnaround not financial improvement.

Antonin Scalia:

Financial turnaround.

Lewis B. Kaden:

Financial turnaround and other factors in the context of the whole statute, and in view of these competing policies, I would suggest means other financial factors.

Antonin Scalia:

Mr. Kaden, the… the argument you were just making assumes that… that the agency is saying… maybe they picked the wrong word by calling it an abusive follow-on plan.

But I don’t think they’re saying that it’s illegal, that it’s something they could into… into–

Lewis B. Kaden:

Well–

Antonin Scalia:

–district court to prevent any more than they could… any more than they would say that a financial turnaround is illegal.

Lewis B. Kaden:

–Well, I would suggest–

Antonin Scalia:

I mean, it’s perfectly lawful–

Lewis B. Kaden:

–Yeah.

Antonin Scalia:

–but it’s… the… the issue isn’t whether its illegal but whether it is a valid reason for the agency to terminate the plan or to–

Lewis B. Kaden:

Or to restore the plan.

Antonin Scalia:

–Yeah.

Lewis B. Kaden:

I… I would suggest, though, that in view of the environment in which this decision takes place… plans once terminated because the company could not afford them… we are now fencing off that part of the case and looking solely at the replacement benefits.

Replacement benefits instituted in settlement of a valid lawsuit in response to a strike threat pursuant to a mandate under 1113 of the Bankruptcy Code and 8(d) of the Taft-Hartley Act, the agency has to have more substance.

There has to be more there to permit that kind of circumscribing of the collective bargaining process.

Antonin Scalia:

Well, just… just strike the adjective abusive.

I mean, the follow-on plan… I mean, I think what they’re saying is that the… they don’t view the object of this statute to be to put onto the fund the obligation of… of assisting a corporation by paying 85 percent of its pension benefits.

Lewis B. Kaden:

That was their decision.

They had… they didn’t have to make that decision.

We could not terminate those plans on our own.

But once they terminate them based on their economic assessment, as they say in the record, that we could not both reorganize and afford these plans.

All we are saying then is neither the structure of ERISA nor these other statutes permits this abuse to be a grounds all by itself in the absence of evidence of financial improvement to return the plans.

Antonin Scalia:

What if it was a mandatory termination?

Does the restoration provision not apply to any mandatory termination situation?

Lewis B. Kaden:

No.

The… the… in our view, you have to be able to afford a plan in order to take it back.

Because if you don’t… if you can’t afford a plan, when you take it back, it will be immediately terminated mandatorily again.

And that kind of ping pong effect could not have been contemplated by the draftsmen of ERISA.

Antonin Scalia:

I’m… I’m not sure we understand each other.

Antonin Scalia:

I was asking is it always the case that the agency has the option, that if they don’t like this, they didn’t have to terminate in the first place?

Couldn’t it happen that the agency is compelled by law to terminate it–

Lewis B. Kaden:

The only–

Antonin Scalia:

–and then what they call an abusive follow-on plan comes up?

Lewis B. Kaden:

–The only circumstance where a mandatory termination by them can take place is in the event there are no assets in the plan.

And when that happens, whatever else happens, whatever other violations there may be that deserve other remedies, you cannot return a plan without assets to a sponsor that has no money to put into it, that cannot fund it, which circles back to the financial improvement.

Because once you do, if you restore a plan without assets under Section 4041, you have to immediately reterminate it and it would be an endless circle.

That cannot be what Congress had in mind in drafting the restoration language of 4047.

Let me turn briefly to the financial improvement.

Here I think the record is self-evidently insufficient.

They had… it was an afterthought, as the district court noted.

They had only the same evidence before them in September that they had acted on in January to terminate the plans, the same two-year business plan.

The record indicates no consideration of the effect of reorganization or the prospect of retermination if they return plans that cannot be afforded.

When they did consider certain… certain factors, they failed to take note of whether they had any enduring quality.

They noted a little bit of cash build-up beyond the business plan in the early months of 1987.

There was a strike at USX going on at the time.

There’s no analysis in the record of whether that strike influenced this brief positive performance.

The fact is that that cash build-up was foreseeable, was foreseen in December, was in the business plan, and that was the only evidence they had before them when they concluded that there had been a financial change during those five months.

The assumptions they did rely on, as the district court found, were fundamental but completely unexplained.

The IRS had just denied a waiver in the fall of ’86.

They assumed we could get three waivers.

Under the statute, under the Internal Revenue Code, you need security for waivers.

We had no security to give, given our status in bankruptcy.

They assumed that we could keep the 50 million concessions that we had gained in exchange for the replacement benefits, even though the replacement benefits would be gone if the plans were restored, a completely fallacious assumption, no analysis of it one way or another.

The fact is that part of the… of the record is entirely insufficient under the Administrative Procedure Act.

Antonin Scalia:

I bet you don’t agree, Mr. Kaden, that the agency’s reasons were independent rather than cumulative?

Lewis B. Kaden:

I think they’ve made clear that… that the reasons are independent.

I just don’t think that’s legally valid.

I think they have to be mutually dependent.

Antonin Scalia:

I know you… I know you argue that as a matter of law, but let’s assume I disagree with you as a point of law.

Antonin Scalia:

In fact, were the reasons that the agency gave at the time the agency gave them, were they independent reasons?

Lewis B. Kaden:

They were independent reasons.

Antonin Scalia:

Okay.

Lewis B. Kaden:

Their position is that abuse by itself justifies restoration, and for the reasons I’ve indicated, we disagree with that.

Our final point is the process point.

The question of what procedures apply in informal adjudication is, as the Solicitor General indicates, an important one not yet addressed by this Court.

But let me suggest that the suggestion here, that we didn’t have notice and an opportunity to rebut, is… is fundamental.

It’s fundamental to the development of a record sufficient for review.

So it is not like a… what the D.C. Circuit Judge Ginsberg called a design standard where you impose procedures on an administrative agency which may bring into play the Vermont Yankee mandate not to do that.

It is, rather, a suggestion of procedures that goes toward creating a reviewable record.

That is a performance standard in the phrase that Judge Breyer used in his book on regulation and reform.

And, indeed, the difference between imposed procedural requirements which bring into play Vermont Yankee and procedures necessary to create a record sufficient for review.

That difference, which brings into play Overton Park, is a difference Justice Scalia noted in his Vermont Yankee article some years ago.

We think on that ground alone–

William H. Rehnquist:

Thank you, Mr. Kaden.

Lewis B. Kaden:

–the case should be remanded.

William H. Rehnquist:

Ms. Flowe you have three minutes remaining.

Carol Connor Flowe:

May it please the Court:

I’d like to first begin by addressing the… what I consider outrageous claim that we were somehow motivated here by a desire to manipulate our claim against this company.

The underpinnings of that assertion is the new law that was passed, which took… which was passed three months after we took the action in this case.

Obviously, we couldn’t have anticipated that.

But that argument also assumes that these plans are going to reterminate and there’s no basis for that assumption here.

As I mentioned earlier, the plans themselves had more than enough assets to continue for several years.

We–

Sandra Day O’Connor:

Does one of the plans now have no assets in it?

Carol Connor Flowe:

–That is incorrect, Justice O’Connor.

As I mentioned in my earlier dialogue with Justice Kennedy, because the agency uses this proportional funding, we’ve been paying some of the benefits out of our premium funds under that plan.

That does mean that there will be a… an amount payable back to the agency once restoration is upheld.

But the plan does have money.

It will not have to terminate in an mandatory termination, if restoration is upheld.

Carol Connor Flowe:

Now, they also… Mr. Kaden also talked about the fact that the company itself might be able to do this, absent a mandatory termination.

But he doesn’t tell you how difficult it is to do that.

As he himself acknowledged, the company couldn’t voluntarily terminate these plans in the first instance.

And there was a good reason for that.

It’s because the union wouldn’t let them.

Under ERISA to terminate a plan voluntarily, the company has to bargain with the union to remove the… the contract bar to termination.

If follow-on plans are not on the table, it’s altogether possible that the union will not agree to termination and will, instead, if it is convinced that some financial concessions have to be made, will make them in other areas rather than allowing these pension plans to terminate again.

But even if the company–

Antonin Scalia:

Why is that any good?

I mean… that… that, it is seems to me, to be the great flaw in the government’s theory that we’re creating an efficient economic marketplace or something.

I cannot imagine that unions are so unsophisticated that if we agree with your position in this case, they will simply say in the next negotiations, okay, don’t give us increased pension benefits, give us… give us the money in some other way.

I mean higher wages or whatever.

And you’re still have one company competing against another company at a disadvantage because 85 percent of the pension benefits are being paid by the fund for one of them.

Why… why should we stretch the… you know, to reconcile the bankruptcy law and the labor law in order to preserve the necessity that the union get its… its advantages in some other way than pension benefits in particular?

Carol Connor Flowe:

–I’m not sure I understand, Justice Scalia.

What I’m suggesting is that be… if the union doesn’t think it can have follow-on plans, once the company tries to negotiate to get permission to terminate… to reterminate these pension plans, the union will say no.

Because… and… and only if it’s convinced that the company has to have some financial concession somewhere, might it agree to other kinds of concessions in order to allow these pension plans to continue.

And even if the company can convince the union that… I–

Antonin Scalia:

You don’t think a union will think, boy, if I let them terminate, the fund will pay 85 percent of all the pensions in the future?

That means this employer is going to be able to pay a lot higher wages.

Why wouldn’t that be an intelligent thing?

Carol Connor Flowe:

–Again, if follow-on plans are off the table, in the agency’s experienced judgment in this area no arrangement other than follow-on plans, which replicate the terminated pension plan, have proven to be as satisfactory to employees generally.

It may not be the… it may have the same economic dislocation, but it should continue having the very important deterrent effect to discouraging unwarranted terminations.

Thank you.

William H. Rehnquist:

Thank you, Ms. Flowe.

This case is submitted.