UPDATE APRIL 19, 2014:
U.S. Bankruptcy Judge Sean Lane ruled Friday that he denied part of American Airlines’ request for summary judgment on the issue of retiree health benefits and approved part of the request.
A representative of the retirees’ committee said “the retirees prevailed almost across the board. The groups where the court granted AMR summary judgment are very small and many, if not most of the individuals in those groups, are in other groups where the court refused to grant summary judgment.”
American had sought a ruling that it was free to change the health plans in which it helps pay the premiums for retirees. If allowed, American said it would require retirees who wanted to keep the benefits to pay all of the premiums.
“We thank Judge Lane for his thoughtful consideration of the issues,” American spokesman Casey Norton said. “American will review his ruling and consider next steps related to the retiree health and life insurance benefits. We always remain open to productive discussions to finally resolve this matter.”
American’s attorney had told the judge at a March hearing that it intended to make retirees begin paying 100 percent of their premiums soon. In the face of Friday’s ruling, ““We’ll review our legal options and make sure we conduct ourselves according to the judge’s ruling,” Norton said.
We’re only now starting to read the 49-page opinion. We’ll update as we understand it better.
The judge wrote that the question was whether promises made to provide the benefits had been promised in way that they were vested and couldn’t be unilaterally changed.
“The Plaintiffs [American, parent AMR and other relative companies] contend that none of the operative documents can be read as a promise to provide benefits for life and that the documents reserve the right to modify the benefits,” Lane wrote.
“But for reasons set forth below, with limited exceptions, the Court denies the Motion because the relevant documents contain language reasonably susceptible to interpretation as a promise to vest benefits and lack language categorically reserving the Plaintiffs’ right to terminate their contributions to the retiree benefits,” the opinion stated.
The judge then summed up the various coverages in dispute:
The Retiree Benefits generally include medical coverage for retirees who are not yet 65, medical coverage for those over 65, and life insurance. For most retirees, medical coverage is either wholly or partially funded by the Debtors. With respect to medical coverage for retirees who previously worked at Trans World Airlines (“TWA”) before its merger with American, however, the Debtors fund pre-65 coverage with retiree and company contributions, but the 65 and over coverage is funded solely by retiree contributions. The Debtors also fully fund life insurance for all retired employees, including the TWA Retirees. The Debtors now seek to shift the entire cost of all these programs to the retirees themselves while still providing retirees access to benefits at group rates.
As of the Petition Date [Nov. 29, 2011, when American et al filed bankruptcy papers], the Debtors provided Retiree Benefits to approximately 46,930 retirees. These retirees can be grouped into several distinct categories: (1) retired union employees from the APA, APFA, and TWU (together the “Union Retirees”); (2) retired TWA employees; and (3) retired non-union employees (the “Non-Union Retirees”). Among these groups, the terms of the Retiree Benefits vary. The terms further depend on when the employee retired and whether they opted into any early retirement or prefunding agreement with American.
For a number of pages, Judge Lane weighed American’s position that the summary documents for the benefit plans gave it flexibility to change the plans, versus the retirees’ position that he had to look at the collective bargaining agreements between American and its unions.
After weighing the arguments and precedent, Lane wrote that “the court rejects Plaintiffs’ argument that the CBAs should not be considered in assessing whether benefits have vested for the retirees.”
American had argued that commitments to retirees provided in union contracts changed when the contracts changed. But Lane ruled that the collective bargaining agreement in place at the time of the employee’s retirement governed that retiree’s benefits, not any subsequent labor contracts approved after the person retired.
The judge noted that if a company in bankruptcy wants to change retiree benefits, it must do so under Section 1114 of the federal bankruptcy code.
American did file requests to abrogate its existing labor agreements under Section 1113, which covers union agreements. It reached agreement with all unions but the Allied Pilots Association before the judge ruled on abrogation. He agreed to abrogate the APA contract; American and the union subsequently negotiated a new contract.
However, American never filed a Section 1114 motion. Instead, it simply asked the judge to rule that it wasn’t bound to keep paying retiree insurance premiums.
The judge said American’s arguments under Section 1113 for current employees don’t cover retirees.
“Court rejects any notion that the Section 1113 proceedings in this case somehow accomplished the dual purpose of abrogating the CBAs of current union workers while also eliminating any right to benefits for retirees. Such a result would be grossly unfair to both current and former employees. It would allow a debtor to double dip on its savings without proving the need for such savings. …
“Such a result is also problematic for another obvious reason: the retirees had no voice in the Section 1113 proceedings. While the Court appointed a retiree committee in this case to represent the interests of retired employees—who are no longer represented by their labor organizations—the retiree committee did not participate in the Section 1113 proceedings. Indeed there was no reason for retirees to participate in the Section 1113 proceedings because no relief was requested as to retiree benefits.”
On the other hand, “the Court is not persuaded by the Defendant’s [the retiree committee] claim that the Railway Labor Act somehow guarantees that retiree benefits must continue regardless of whether those benefits have vested or the employer has reserved the right to terminate them.
“The Defendant points to no authority establishing that the Railway Labor Act automatically vests retiree benefits, regardless of the terms of the relevant documents, and the Court is aware of none. There is also nothing in this Court’s prior opinion in this case on the Railway Labor Act that supports the Defendant’s position.”
For Allied PIlots Association retirees: “The Defendant points to various language in the documents that make up the CBAs as being reasonably susceptible to interpretation as a promise to vest benefits. The Court agrees that these can be reasonably interpreted as a promise for lifetime benefits.”
A Note From The Local; In Summary: Yesterday, Judge Lane ruled on the company's motion for summary judgement on retiree health care. He rejected their request to turn over the financial responsibility for this coverage but this doesn't resolve the issue. Judge Lane did not decide definitively if the retiree health benefits are vested. Instead, he rejected AA's motion for summary judgment in which the Company argued that the application of the law to purportedly undisputed facts showed that the benefits aren't vested. Having denied the motion, the court will schedule a hearing during which testimony and other relevant evidence would be offered. The hearing would be at least as long, if not longer than the 1113 hearing. Alternatively, American could appeal the Court's decision to the U.S. District Court which is the first level of appeal.
I've attached the 49 page opinion and decision to this email. Additionally there is an additional links below for more information. This ruling has no effect on our pre-funding refunds. It was more a matter of housekeeping and just moving the decision down the road. We will have to wait and see how the company reacts in the coming weeks and when the Courts schedule a hearing on this matter.
http://finance.yahoo.com/news/judge-says-american-cant-end-211051281.html?soc_src=mediacontentstory
Download:
|