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Wednesday, March 2, 2016
VEBA Prefunding Decision – LAA
In a decision issued today, the American-APFA System Board of Adjustment (SBA) denied the prefunding grievance. The two members of the Board appointed by the Company concurred with the reasoning of the neutral arbitrator while APFA’s members dissented.
APFA contested American’s refusal to distribute to the Flight Attendants the contributions it had made on behalf of Flight Attendants for the prefunding of retiree health benefits. Our grievance was based on a Side Letter to Article 35 of the collective bargaining agreement which states that:
…[T]he parties agreed that contingent on the successful resolution of the Section 1114 process, as soon as practicable after termination of the Trust Agreement for the Group Life and Health Benefits Plan for Employees of Participating AMR Corporation Subsidiaries (Union Employees), the Company pre funding contributions for each participating active employee, and investment earnings attributable thereto, will be distributed to the employee (subject to applicable tax withholdings and/or excise tax), excluding employees who have already received refunds of their employee pre funding accounts. The refund will be made to the employee following the successful conclusion of the 1114 process.
As you may remember, Section 1114 of the Bankruptcy Code establishes the procedures for modifying or terminating the retiree health benefits of current retirees. We argued that this provision of the LBFO required American to pursue “the Section 1114 process.” By not even attempting to fulfill this obligation, American forfeited the right to claim that the process had not been successfully resolved.
The System Board concluded that American had, in fact, sought a “successful resolution” of the 1114 process. Although it had not filed a motion with the Bankruptcy Court to terminate retiree health benefits as provided for by Section 1114, it had chosen to achieve this objective by initiating an Adversary Proceeding in which it asked the Bankruptcy Court to find that the retiree benefits were not vested. If not vested, the Company claimed, it could unilaterally end these benefits. In addition, resorting to Section 1114 would no longer be necessary as it applied only to vested benefits.
The SBA rejected our contentions that the Adversary Proceeding cannot be considered part of the “1114 process” and therefore did not relieve American of its obligation to seek relief under this provision of the Bankruptcy Code. It determined that the Adversary Proceeding would have accomplished the same goal as the 1114 process – the termination of retiree health benefits. The Board concluded that, “neither that language [“the Section 1114 process”] nor any other evidence persuades the Board that the parties intended that process to be the exclusive means of achieving” a successful resolution. Opinion at p. 15. “Even assuming, without deciding, the Adversary Proceeding did not fit within the precise boundaries of a §1114 process, the Company’s actions were not unreasonable, in no way designed to avoid its commitment and, while unsuccessful, cannot be seen as having breached the intent of the contracting parties.” Opinion at p. 15.*
Alternatively, we made the argument that by successfully exiting from bankruptcy, American had successfully resolved the 1114 process. The System Board concluded that that this did not satisfy the meaning of “successful resolution”. The Board found that a “successful resolution” was tied to the Company being relieved of all costs associated with retiree health benefits. It credited the Company’s testimony that getting this liability “‘off [its] books’” was the mark of success. As the Board observed, this was not the case when American emerged from bankruptcy; instead the Company’s costs for the health benefits of current retirees remained unchanged. An additional Prefunding Q and A hotline will be forthcoming.
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