Sixth Circuit: Union’s Waiver of 30-Year Retired Employee’s Benefits Without Notice or Consent Protected Assets of Bankrupt Employer.

Today, the Sixth Circuit issued a decision in which it held that the statutory and severance claims of a 30-year retired employee of bankrupt LTV Steel had been waived by the employee’s former union even though he received no notice of the waiver, never consented to it, and had been explicitly excluded from receiving compensation under the waiver agreement. McMillan v. LTV Steel, Inc., No. 07-4370. Although federal law is pretty clear that unions no longer represent retired employees in negotiations, the employee was deemed to have waived that compelling legal argument when he failed to raise it in support of his claims before the bankruptcy or district courts. The Sixth Circuit also refused to disturb the district court’s conclusion that the employee’s actual claim for pension and 401(k) benefits was with the Pension Benefit Guaranty Corporation (PBGC) since it had assumed control of the employer’s retirement benefits when it filed for bankruptcy.

According to the court’s opinion, the plaintiff retiree worked for 30 years in a UWSA unit for LTV Steel. The UWSA and LTV had negotiated both a defined contribution plan (i.e., a 401(k) plan to which both the employee and employer contributed) and a defined benefit plan (i.e., pension). In 1999, the UWSA and LTV reorganized the retirement benefits to eliminate future pension contributions (and limit future payouts to a $10,000 lump sum), and to transfer employer contributions from the 401(k) plan to the pension plan. About a year later, LTV filed for bankruptcy protection, issued a WARN notice a few months later and eventually permanently closed the retiree’s plant. The plaintiff retiree worked at reduced pay at other LTV plants, but remained out of work beginning in August 2001. Under a USWA negotiated agreement, he had the option to transfer (without seniority) to another plant, to remain on layoff status, to accept retirement or to take severance. The plaintiff elected to retire in December 2001 and take his $10,000 pension lump sum. While the opinion is ambiguous on this point, this amount was apparently never paid.

In the meantime, LTV eventually sold all of its assets in December 2001, but the sale proceeds were only sufficient to pay secured creditors and not to pay administrative claims or unsecured creditors, such as the plaintiff and other retirees. Accordingly, PBGC assumed LTV’s pension obligations. The UWSA then renegotiated the CBA with LTV and eliminated, among other things, the previously promised severance pay. Nonetheless, six months later, the USWA filed an administrative claim with the bankruptcy court for LTV’s failure to pay severance pay, WARN Act liability, retiree benefits, etc. The UWSA settled its claim with LTV in December 2003 for $15M, but the settlement expressly did not benefit retirees such as the plaintiff who worked at his original plant or were laid off prior to November 2001. In the 2003 settlement, UWSA waived any and all other claims it could make arising out of any bargaining agreement. The plaintiff received no notice of the USWA administrative claim and did not receive notice of, or consent to, the 2003 settlement.

Nonetheless, the plaintiff filed his own administrative claim against LTV in 2002 for over $300,000 (for unpaid wages, pension benefits and 401(k) payment) and it was denied by the bankruptcy court. The plaintiff eventually reached an unsecured settlement with Copperweld -- one of LTV’s subsidiaries -- for the full amount, but retained his right to pursue his claim against LTV. In 2004, he filed another administrative claim for over $40,000 for his unpaid 401(k) contributions, severance pay and other benefits.

The bankruptcy court found that the 401(k) contributions were transferred to the pension fund in 1999 and were now being administered by PBGC and not LTV. The Sixth Circuit agreed that the plaintiff should be limited to asserting a claim against the PBGC. In addition, the bankruptcy court found that collateral estoppel from the Copperweld settlement estopped the plaintiff from pursuing the same amount from LTV, despite his reservation of rights to pursue claims against LTV. The Sixth Circuit found that the plaintiff’s claims were not entitled to administrative priority status because the liability arose before LTV filed for bankruptcy and did not relate to retiree healthcare benefits.

Finally, his claim for severance benefits and WARN Act payments were deemed waived by the USWA in 2003 even though he received no proceeds from that $15M settlement, received no notice of the claim or settlement, and never consented to the settlement. Indeed, the law is clear that unions cannot negotiate on behalf of retirees because they are no longer union members. However, even though the bankruptcy court erroneously concluded that the USWA was acting as his agent, the plaintiff never raised the issue of agency to the bankruptcy or district courts, but rather, focused on his lack of notice and consent to the settlement. Therefore, the Sixth Circuit determined that he could not belatedly raise the agency argument even if the lower courts had erred. Moreover, if the UWSA had been his agent, it had authority to waive his WARN Act and severance pay claims on his behalf – even without notice or consent. Therefore, those claims were also dismissed.

Insomniacs can read the full court decision at http://www.ca6.uscourts.gov/opinions.pdf/09a0040p-06.pdf.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.