In Re: Erie Forge , 418 F.3d 270 ( 2005 )

Opinions of the United
2005 Decisions States Court of Appeals
for the Third Circuit
8-9-2005
In Re: Erie Forge
Precedential or Non-Precedential: Precedential
Docket No. 04-1615
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Recommended Citation
"In Re: Erie Forge " (2005). 2005 Decisions. Paper 621.
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PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
__________________________
No. 04-1615
________________________
IN RE: ERIE FORGE & STEEL, INC.,
Debtor
HOURLY EMPLOYEES/RETIREES OF DEBTOR,
Appellants
v.
ERIE FORGE & STEEL INC.; PASCARELLA & WIKER,
LLP; THE OFFICIAL COMMITTEE OF UNSECURED
CREDITORS; THE UNITED STEEL WORKERS OF
AMERICA
Appellees
______________________________
On Appeal from the United States District Court for the
Western District of Pennsylvania
(Civil Action No. 02-cv-00233E)
District Judge: Hon. Sean J. McLaughlin
Argued: January 18, 2005
1
Before: Alito, McKee, Smith, Circuit Judges
(Opinion Filed: August 9, 2005)
GEORGE M. SCHROECK, ESQ. (Argued)
Schroeck & Associates, P.C.
338 West Sixth Street
Erie, Pennsylvania 16507
Attorney for Appellants
DAVID R. JURY, ESQ.
Assistant General Counsel United Steelworkers of America
Five Gateway Center, Rm. 807
Pittsburgh, Pennsylvania 15222
RICHARD E. GORDON, ESQ. (Argued)
Grossinger Gordon Vatz, LLP
1000 Law & Finance Building
429 Fourth Avenue
Pittsburgh, Pennsylvania 15219
Attorneys for United Steel Workers of America
DAVID LAMPL, ESQ. (Argued)
KIMBERLY A. COLEMAN, ESQ.
MICHAEL J. ROESCHENTHALER, ESQ.
525 William Penn Place, 30 th Floor
Pittsburgh, Pennsylvania 15219
Attorneys for Pascarella & Wiker, LLP and the Official
Committtee of Unsecured Creditors
OPINION
2
McKee, Circuit Judge
A group of former employees appeal an order of the
United States District Court for the Western District of
Pennsylvania affirming the Bankruptcy Court’s approval of a
Stipulation of Erie Forge and Steel, Inc. (the “Debtor” or
“”EFS”), the Official Committee of Unsecured Creditors, and
the United Steelworkers of America (“USWA”). The
Stipulation resolved the pending Application to Modify Retiree
Benefits under 11 U.S.C. § 1114. Appellants argue that the
district court erred in concluding that they were bound by the
Stipulation. For the reasons that follow, we will affirm.
I. FACTS AND PROCEDURAL HISTORY 1
EFS is a former steel manufacturing company located in
Erie, Pennsylvania. In 1984, its predecessor (National Forge
Company) adopted the "Hourly Employees Insurance Plan,
National Forge Company, Erie Plant" (hereinafter, the "1984
Benefits Plan"). That Plan was eventually adopted by EFS after
it acquired National Forge. The Summary Plan Description of
the 1984 Benefits Plan provides that "[t]he Plan may be
1
Because the facts, as set forth by the District Court,
accurately reflect the record and are not in dispute, we have
substantially excerpted this section of the District Court’s
decision. See Hourly Employees/Retirees of Debtor v. Erie
Forge & Steel, Inc. 2004 WL 385023, *1 -4 (W.D.Pa. Feb. 2,
2004).
3
terminated at any time by the Board of Directors of [EFS]."
On or around October 1, 1998, EFS adopted the "Erie
Forge & Steel Company Retiree Medical Benefit Plan--A
Defined Dollar Structure" (the "DDS Plan"). It was
incorporated by reference into an October 1, 1998 Collective
Bargaining Agreement between EFS and Local 1573 of the
USWA (the “CBA”). The DDS Plan applied to future retirees
and employees who retired before 1998 with 25 years of service
and who elected the DDS Plan in lieu of their traditional health
insurance premium coverage. The DDS Plan provided that EFS
could amend or terminate the DDS Plan at its sole discretion.
On December 22, 2000, EFS filed a voluntary petition for
relief under Chapter 11 of the Bankruptcy Code, 11 U.S.C. §
101 et seq. Thereafter, it continued operations as a Debtor-in-
Possession. At the time of its Chapter 11 filing, EFS employed
approximately 25 salaried, and 146 hourly, workers. The hourly
employees are and/or were members of the USWA's local
affiliates. On January 4, 2001, Richard E. Gordon, Esq. filed his
appearance as counsel on behalf of USWA. He has been counsel
of record for the Union both in the underlying bankruptcy
proceedings and in this appeal.
On or about September 24, 2001, EFS informed its
retirees that it would be terminating their benefits at the end of
October 2001, and on October 31, 2001, EFS stopped paying
retirees’ medical benefits. As of that date, all of the appellants
were either active employees or they had previously resigned
from EFS; none of them had been receiving retirement benefits
4
under either the 1984 Benefits Plan or the DDS Plan.
On November 15, 2001, the Bankruptcy Court approved
the sale of substantially all of EFS's assets to the Park
Corporation. That same day, the Debtor laid off substantially all
of its work force, including those appellants who were still
working at EFS.
The Debtor's Plan of Reorganization was filed with the
Bankruptcy Court on July 12, 2002 and was confirmed in an
order dated August 26, 2002. Under the terms of the Plan, the
Park Corporation was to continue the business operations of
EFS as a reorganized debtor free and clear of any claims or
encumbrances by EFS's pre-petition creditors, including those
persons who might have a claim to retirement benefits. The Plan
required the remaining assets of the Estate to be pooled into a
liquidating trust for the purpose of funding the claims of EFS's
creditors.
No appeal was taken from the entry of this Confirmation
Order, and the Bankruptcy Court entered a Final Decree Order
on November 1, 2002. Meanwhile, pursuant to 11 U.S.C. §
1113, on November 30, 2001, EFS had filed a motion to reject
its Collective Bargaining Agreement ("CBA") with the USWA
(the "1113 Motion"). The Union opposed that motion. The
Union was particularly concerned about unpaid vacation and
personal days which its members had accrued in 2000 and
5
2001.2 The Committee sought to preclude vacation pay as an
allowed administrative claim against the Estate.
Ultimately, the parties negotiated a settlement of the 1113
Motion in the form of an Omnibus Consent Order that the
Bankruptcy Court approved and entered on January 8, 2002.
Pursuant to that Consent Order, the CBA was terminated subject
to a reservation of rights by all parties under 11 U.S.C. § 1114.
The USWA recovered $340,386 (representing 90% of its
claims) as allowed administrative claims to be paid forthwith to
some 172 former hourly employees of EFS. A general unsecured
claim in the amount of $37,820 (or 10% of the Union's claims)
was also allowed. In addition, the Union was awarded a general
unsecured claim of $150,000, representing damages resulting
from EFS's rejection of the CBA.3
On May 30, 2002, EFS filed its 1114 Motion to determine
which, if any, claim would be allowed as a result of its
termination of retiree benefits. Initially, the Union opposed the
1114 Motion on the grounds that, inter alia, EFS had not
2
Appellants did not dispute or contest the USWA’s
representation of their interests.
3
Again, appellants did not dispute or contest their
representation by the USWA. A number of the former hourly
employees on whose behalf this recovery was obtained are now
appellants in this matter.
6
complied with § 1114(f)(1)(A) and had failed to show that the
Union declined the proposal without good cause. The Union
also maintained that EFS's unilateral termination of benefits as
of November 1, 2001 violated section 1114(e) and that EFS had
declined to acknowledge the status of any retiree benefits as an
administrative expense as required by 11 U.S.C. § 503. The
Union initially took the position that the healthcare coverage at
issue was the product of collective bargaining which provided
for vested, lifetime benefits.
The Committee, on the other hand, asserted that the 1114
Motion was superfluous and that any protections afforded by
section 1114 were inapplicable because EFS had merely
exercised its right to unilaterally terminate retiree benefits. The
Committee maintained that the benefits at issue were not vested
and, therefore, no claim could be made against the Estate
relative to their termination. The Liquidating Trustee made
similar arguments.
Despite its initial opposition to the 1114 Motion, the
Union subsequently decided to enter into the Stipulation with
EFS, the Committee, and the Liquidating Trustee. The
Stipulation resolved the section 1114 Motion by allowing an
administrative claim of $500 and an unsecured claim of $5,000
for each of the 77 retirees (or their widows) who retired before
the October 31, 2001 termination of retiree benefits. The Union
also agreed that those individuals who, although eligible, were
not receiving retirement benefits as of October 31, 2001 would
be excluded from any share in the allowed administrative and
general unsecured claims.
7
On January 16, 2003, EFS, the Committee, the
Liquidating Trustee, and the Union filed their "Joint Application
for Approval of Stipulation with Hourly Employees and Motion
to Bind Salaried Employees/Retirees to Terms of Stipulation"
(hereinafter, "Application for Approval of Stipulation"). The
Application for Approval of Stipulation was served on hourly
and salaried current and future retirees of EFS. The cover letter
explained that hourly employees would receive allowed
administrative and unsecured claims under the Stipulation if
approved by the Bankruptcy Court, and that former hourly
employees who had not retired as of the November 2001 sale
would not receive an allowed claim for retiree welfare benefits.
The latter employees were told that counsel for the USWA could
not represent former hourly employees who might object to the
Stipulation because the USWA was seeking approval of the
settlement.4 Certain of the union members were dissatisfied
with the Stipulation and sought independent legal representation
through George Schroeck, Esq.
On March 24, 2003, Schroeck filed a response to the
Application for Approval of Stipulation on behalf of 82 former
employees of EFS. Each of those original 82 objectors were
Union members who had not retired as of October 31, 2001. In
their response, those former employees objected to the
Stipulation and requested a court order requiring EFS to
4
Appellants originally represented that the USWA’s letter
stated that an evidentiary hearing would be scheduled if a
former employee objected to the motion to approve the
Stipulation. The letter contained no such statement.
8
continue paying full benefits during the pendency of the Chapter
11 proceedings.5
Schroeck appeared on behalf of the objectors at a March
26, 2003, hearing on the Application for Approval of
Stipulation, and claimed that there were disputed issues of fact
which precluded the Bankruptcy Court's approval of the
Stipulation. The court responded by adjourning the hearing to
give him an opportunity to present the factual disputes. On
April 2, 2003, Schroeck submitted a "declaration" on behalf of
the former hourly employees in which he asserted, inter alia,
that the employees' health benefits were vested by virtue of the
DDS Plan and the relevant CBAs.
A second hearing on the Application for Approval of
Stipulation was conducted on April 8, 2003, and questions were
raised about the scope of Schroeck's representation. The
Bankruptcy Court opined that Gordon represented all hourly
employees and retirees but it nevertheless expressed uncertainty
as to whether Schroeck could represent any salaried (i.e., non-
union) retirees. The hearing was therefore once again adjourned
without final disposition to afford Schroeck an opportunity to
ascertain whether any of his 82 putative clients were salaried
retirees. On April 24, 2003, Schroeck sent a letter to the court
stating: “Dear Judge Bentz, in follow up to my response to your
order of April 10, 2003, please be advised that after further
5
As of the date of the Response, the Plan had been
confirmed for seven months and EFS had not paid retiree
benefits for nearly 18 months.
9
investigation, I now believe that all the salaried employees (who
I may represent) were still actively employed as of October 31,
2001.”
On April 30, 2003 the Bankruptcy Court conducted
another hearing to resolve issues regarding the Application for
Approval of Stipulation. During that hearing, the court reiterated
its view that the hourly employees were bound by the Stipulation
in which the Union – their authorized representative – had
joined. After making some minor modifications to the proposed
approval order, the Bankruptcy Court granted the Application
for Approval of Stipulation. Thereafter, Schroeck filed a
Motion for Reconsideration on behalf of 12 former hourly
employees, none of whom had retired as of October 31, 2001.
In that motion, Schroeck asserted that the Union had been
operating under a conflict of interest in representing both the
retired and active hourly employees, and he requested a hearing
to challenge the Stipulation based upon the objectors’ purported
status as "constructive retirees" under § 1114.
The Bankruptcy Court denied the motion for
reconsideration. The order denying the motion provided in
pertinent part as follows:
[t]he United Steelworkers of America is the
authorized representative of the hourly employees
for purposes of 11 U.S.C. § 1114 and therefore,
its members are bound by the Stipulation that it
entered into which was approved by Order dated
April 30, 2003 and accordingly the within Motion
for Reconsideration is REFUSED as to hourly
10
employees.6
Schroeck appealed to the District Court on behalf of 83
former hourly employees (appellants herein). The District Court
dismissed the appeal and affirmed the approval of the
Stipulation. The District Court did not address the merits of
Schroeck’s arguments because the court concluded that the
appellants lacked standing to appeal the Order Approving the
Stipulation. The District Court rejected appellants’ claim that
they had standing as “constructive retirees” with rights under
section 1114. The court also held that appellants were bound by
the Stipulation that the USWA had entered into in good faith.
In the District Court’s view, the USWA had been appellants’
authorized representative because appellants were working for
EFS as hourly employees when terminated. This appeal
followed.
6
In a subsequent memorandum dated July 15, 2003, the
Bankruptcy Court reiterated its previous finding that the Union,
as the authorized representative of the hourly employees, had
bound the hourly employees to the terms of the Stipulation. The
court also concluded that no conflict of interest arose from the
Union's simultaneous representation of the hourly retirees on
one hand, and the hourly employees on the other. In the court’s
view, no conflict existed “because the Debtor [had] sold
substantially all of its assets, laid off all employees, ceased
operation, and terminated its Collective Bargaining Agreement
with the Union prior to seeking modification of the retiree
benefits.”
11
7
II. DISCUSSION
Appellants contend that the District Court erred in ruling
that they lack standing under 11 U.S.C. § 1114(c), and that they
are bound by the Stipulation entered into by the USWA. For the
reasons that follow, we will affirm.8
7
Our inquiry is the same as the District Court’s review of
a Bankruptcy Court’s decision. In re Kiwi Int’l Air Lines, Inc.,
344 F.3d 311, 316 (3d Cir. 2003). Thus, we review findings of
fact for clear error and exercise plenary review over legal
determinations. In re Trans World Airlines, Inc., 145 F.3d 124,
131 (3d Cir. 1998).
8
Because we affirm based on the District Court’s
conclusion that appellants are bound by the Stipulation their
union entered into, we need not address the standing issue here.
See McNamara v. City of Chicago, 138 F.3d 1219 (7th Cir.
1998) (citing Steel Co. v. Citizens for a Better Environment, 523
U.S. 83 (1998), for the proposition that, because “the
jurisdictional issue is not whether the plaintiffs have been
harmed (Article III) but whether they should be allowed to sue
for that harm (zone of interests) . . . [t]he latter type of
jurisdictional issue (‘prudential standing’ as it is sometimes
called) may be bypassed in favor of deciding the merits.”).
However, we do note that in In re: General Datacomm Indus.,
Inc. v. Arcara, 407 F.3d 616 (2005), we recently held that
“‘retired employees,’ as contemplated by § 1114, encompasses
the concept of ‘forced retirement,’ at least in situations where .
. . employees on the verge of voluntary retirement are
strategically and deliberately terminated without cause by a
12
Section 1114(c) of Title 11 states:
(1) A labor organization shall be . . . the
authorized representative of those persons
receiving any retiree benefits covered by any
collective bargaining agreement to which that
labor organization is a signatory, unless (A) such
labor organization elects not to serve as the
authorized representative of such persons, or (B)
the court, upon a motion by any party of interest,
after notice and hearing, determines that different
representation of such persons is appropriate.
(2) In cases where the labor organization referred
to in paragraph (1) elects not to serve as the
authorized representative of those persons
receiving any retiree benefits covered by any
collective bargaining agreement to which that
labor organization is signatory, or in cases where
the court, pursuant to paragraph (1) finds different
representation of such persons appropriate, the
court, upon a motion by any party in interest, and
after notice and a hearing, shall appoint a
committee of retired employees if the debtor
debtor.” Id. at 617, 624. That rule is applied on a “case-by-
case” basis. Id. at 622.
Since we are deciding the case on the more narrow
ground that appellants are bound by their union’s Stipulation, we
need not address appellants’ claim that they should be
considered “constructive retirees.”
13
seeks to modify or not pay the retiree benefits or
if the court otherwise determines that it is
appropriate, from among such persons, to serve as
the authorized representative of such persons
under this section.
11 U.S.C.A. § 1114(c).
“Authorized representative” is defined as “the authorized
representative designated pursuant to subsection (c) for persons
receiving any retiree benefits covered by a collective bargaining
agreement . . .” 11 U.S.C. § 1114(b)(1).
Appellants maintain that they informed the District Court
that the USWA had elected not to serve as their authorized
representative by virtue of a letter USWA’s attorney, Richard
Gordon, sent appellants. That letter stated in relevant part:
Dear former hourly employees . . . . Any objection
to the [Application for Approval of Stipulation]
by a former EFS employee must be filed with the
Bankruptcy Court by March 24 th , 2003. For the
reasons set forth above, the USWA or its legal
counsel cannot represent you should you object to
a motion to approve the stipulation.
Even if we interpret that letter as a declaration by the
Union that it would not represent appellants, appellants’
argument could still not survive the plain language of 11 U.S.C.
§ 1114. See In re Resorts Int’l, Inc., 181 F.3d 505, 515 (3d Cir.
1999) (“We begin every statutory interpretation by looking to
the plain language of the statute. When the language is clear, no
further inquiry is necessary unless applying the plain language
14
leads to an absurd result.” (citations omitted)). Section
1114(c)(1)(A) provides that a labor organization may elect not
to serve “as the authorized representative of those persons
receiving any retiree benefits covered by any collective
bargaining agreement to which that labor organization is
signatory.” 11 U.S.C. § 1114(c)(1)(A). However, pursuant to
11 U.S.C § 1114(c)(2), where the labor organization elects not
to function as the authorized representative of the employees,
the court, “upon a motion by any party in interest, and after
notice and a hearing, shall appoint a committee of retired
employees . . . to serve as the authorized representative of [those
persons receiving any retiree benefits covered by any collective
bargaining agreement to which that labor organization is
signatory].” (Emphasis added).
Thus, even assuming arguendo that, by sending the letter,
the USWA elected not to serve as appellants’ authorized
representative, and that appellants were in fact “a party in
interest,” there is nothing in the record that suggests that
appellants ever moved for appointment of any authorized
representative other than the USWA. Moreover, at oral
argument, counsel for appellants conceded that they had made
no attempt to request an appointment under the statute.
Accordingly, the USWA continued to function as appellants’
authorized representative and had the authority to enter into the
Stipulation on their behalf. See 11 U.S.C. § 1114(c)(1) (“A
labor organization shall be . . . the authorized representative of
those persons receiving retiree benefits covered by any
collective bargaining agreement to which the labor organization
is signatory, . . . ” (emphasis added)).
15
Appellants’ failure to file a motion is also fatal to their
contention that the Bankruptcy Court and District Court should
have held an evidentiary hearing. Section 1114(c)(2) clearly
states that “[i]n cases where the labor organization . . . elects not
to serve as the authorized representative . . . the court, upon a
motion by any party in interest, and after notice and a hearing,
shall appoint . . . .” (emphasis added)). 11 U.S.C. § 1114(c)(2).
The use of the conjunction “and” indicates that a hearing is only
required when an appropriate motion has been filed. That did
not happen here. Similarly, appellants cannot rely on 11 U.S.C.
§ 1114(c)(1)(B), which states that, “A labor organization shall
be . . . the authorized representative . . . unless . . . the court,
upon a motion by any party in interest, after notice and hearing,
determines that different representation of such persons is
appropriate.” (Emphasis added).
Consequently, appellants are bound by the Stipulation
entered into by the USWA,9 and the District Court properly
rejected their attempt to challenge it in the Bankruptcy Court.
CONCLUSION
9
Appellants did not appeal the Bankruptcy Court’s
January 8, 2002 “Omnibus Consent Order to Settle Debtor’s
Motion to Reject Collective Bargaining Agreement Pursuant to
U.S.C. § 1113,” even though there is no dispute that appellants’
rights under the Collective Bargaining Agreement were affected
by this Order, and 11 U.S.C. § 1113 clearly protected those
rights. Indeed, many appellants were beneficiaries of the Order.
16
For the above reasons, we will affirm the District
Court’s dismissal of appellants’ appeal from the Bankruptcy
Court’s decision.
17