[00:00:01] Speaker 01:
Case number 19-5261, Kay Wendell Lewis et al.

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of Balance versus Pension Benefit Guarantee Corporation.

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Mr. Shelley for the balance.

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Mr. Crotett for the appellee.

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Mr. Shelley, good morning.

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Good morning.

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Before you begin, let me welcome on behalf of Judge Ginsburg and myself our newest colleague,

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Judge Walker, this is his second day of argument.

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I was hoping it would be his first, but this is his second, and we're awfully glad to have him on board.

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So if you will proceed with your argument.

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Thank you, Judge Anderson.

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Good morning, and may it please the court.

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This is Anthony Shelley.

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In this appeal, the court is faced with a unique situation, the rare instance in which a federal agency is required by statute to act as a fiduciary.

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With that fiduciary status comes the judicial review standards associated with fiduciary determinations, which means no deference to the fiduciary statutory constructions and limited deference to contractual and factual determinations.

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On top of that, the fiduciary is to be guided by the goal of protecting beneficiaries, sharing information with them, paying the greatest possible benefits to all, and fairly considering even raising for the beneficiaries all necessary arguments to get benefit adjudications right.

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In the PBGC's decision here, the PBGC on the substance got things very wrong, straying from its obligation to ensure the payment of benefits to the maximum extent possible.

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And the district court then compounded the errors by giving the PBGC the maximum deference it could, as if we were in the heyday of Chevron for a federal agency as opposed to reviewing a fiduciary's decisions.

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I'd like to address the review standard first and then turn to the merits of the particular counts.

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The first standard of review issue is whether Chevron deference should be afforded to the PBGC statutory constructions.

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Davis 1, the decision in Davis 1 plays large in the briefing as well as in the district court's decision.

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But at best, Davis 1 is to be accepted for the arguments it reached, no more, no less.

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And it reached only one argument, and that was whether deference should be denied the PBGC because a private trustee in the same situation

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acting under the PBGC statute wouldn't.

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And the court said, no, that wasn't sufficient to disallow Chevron deference.

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But that's all it said.

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And it's not the be-all and end-all for Chevron deference to the PBGC as a fiduciary, because Davis II, in fact, said that.

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It didn't accept it as such and instead avoided the question.

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Moreover, and it just, it didn't, it said, um, it didn't draw back from Davis one.

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Uh, it said under any standard it made its ruling.

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So I don't see that it's cut back on Davis one.

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And I don't see that when Davis one said, uh, that PBGC is not like a private fiduciary.

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Um, that says to me, we give it deference.

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Well, in Davis one, the court said,

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For the reason it considered, we give deference to the PBGC on its authoritative constructions of the statute.

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And even assuming Davis 1 remains binding on more than even what it reached, the court can always consider a new Supreme Court precedent that came afterwards as to whether it undermines

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the decision in Davis 1 and the Jicarilla case came after Davis 1 and Jicarilla says that where a federal agency is by statute, ascribed fiduciary status, you treat it as a fiduciary.

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And so that undermines Davis 1.

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But also importantly, taking Davis on, Judge Henderson, taking Davis on its terms, Davis 1 on its terms, it says that only the authoritative

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The authoritative determinations of the PBGC are entitled to Chevron deference.

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And the Page case from years earlier says that decisions only of the board of directors of the PBGC are authoritative on policy issues.

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And no one thought about this in Davis 1.

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And the issue sort of lurked in the case, much like the courts stated in the old Westfall case from the Supreme Court, or Justice Gorsuch recently stated in the Jander decision.

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If an issue is just a- Mr. Shelley, was Jicarillo a Chevron case?

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It was not a Chevron case.

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It was a case about whether the typical standards of privilege law would apply from trust law would apply to the government in a fiduciary status.

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And the court said because they weren't given fiduciary status by statute, you couldn't apply.

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You could not apply the typical standards.

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If we were to not apply Chevron here, would we be saying that Davis won?

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should not have applied Chevron?

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Yes, you would be.

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You would be saying that Davis 1 was not incorrect on the basis it reached, but Davis 1 can't govern a case where, for instance, the Supreme Court subsequently has determined an issue contrary to Davis 1, but also that Davis 1 only went as far as it did had it gone further and considered whether the PBGC appeals board's decisions were authoritative.

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It couldn't have reached the decision it did.

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But honestly, a precedent is a precedent in the sense that it may get updated by later Supreme Court precedent or further thought about what it said in considering the issues may further amplify on what the precedent meant.

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So Davis won.

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And Davis once says what it says, but given that it used the word authoritative as to what the PBGC did, and there's, in our view, no question that what the appeals board did is not authoritative because it's not what the board of directors, it's not a board of directors decision, it's not authoritative.

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I thought I heard you say when a subsequent Supreme Court case arises that in this case, it has and has overtaken Davis, you referred to

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to Hikariya, yes?

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Jicarilla, the 2011 case from the Supreme Court.

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Okay, the only one cited in your brief is the district court opinion.

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I don't believe that's, let me just double check on that.

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Maybe it appears later.

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It's called United States versus Jicarilla.

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Okay.

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Thank you.

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And that is, it's two years after the Davis one opinion.

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Aside from Chevron deference, the second deference question is whether the PBGC is entitled to deference under a APA arbitrary and capricious standard for its factual and contract interpretations.

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And the issue may not actually be needed to be decided in a sense by the court because

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As we noted in, I believe it's footnote four of our opening brief, under the APA, a deference to an agency is tempered when some, in many cases, some cases say when it's interpreting a contract, because the courts interpret contracts generally.

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And in addition, there's some suggestion in the case law that if the agency, if there's a structural conflict of interest the agency might have in a case, it's, the deference to it is less.

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That's what ERISA would say.

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And if the court were to follow those cases under the APA, it makes no difference whether the court says that the deference standard on factual and contract constructions is the APA standard or the ERISA standard.

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But we would say, for purity, the ERISA standard of review is the one that applies, which is an arbitrary and capricious standard tempered by the fact that there's a structural conflict of interest with the PBGC because it

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enjoys the fruits of the funds it holds in trust here.

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And the longer it holds them, the more money the PBGC is able to use for its own operations.

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How do you distinguish US Steel, an opinion that Judge Randolph authored?

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US Steel wasn't a situation where the PBGC was acting as a fiduciary.

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It was acting as a guarantor, which is in its sovereign capacity as opposed to

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this situation, which involves the asset allocation system under section 1344 of ERISA, which is only a fiduciary capacity.

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On the substance of the claims, so on the merits, I'd like to turn to count two for a second.

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This focuses on the PC5 category.

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And our assertion in the claim is that the PBGC erred when it refused to take into account and subtract from its allocation awards the follow-on plan benefits that the active pilots obtained.

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Had the district, had the PBGC done that, that would have meant the entire $569 million in PC5 would have gone to retirees.

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The PBGC should have done this because

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ERISA required it as a fiduciary to pay benefits, not award windfalls to the actives.

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And in addition, the plan terms specifically said that benefits, related benefits that the actives received should have been subtracted.

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The district court really focused on the terms of the plan.

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And the terms of the plan actually required the subtraction.

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And so we would say on this very large issue that's worth a significant amount of money, the PBGC got it wrong.

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I see that I'm in my rebuttal time, so I'd like to reserve my time for rebuttal.

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All right.

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Mr. Kretick.

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Good morning to the panel.

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Joseph Kretick for the Pension Benefit Guarantee Corporation.

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As you surely know, PBGC is the federal agency founded by Iris in 1974 to protect private sector defined benefit plans and went up

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Private sector defined benefit plan is unable to pay benefits and the plan sponsor cannot afford it.

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PBG steps in, pays at least the minimum guaranteed benefit that's provided for under Title IV.

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In this case, involving the Delta POS plan, PBGC used nearly $800 million of its insurance funds to be able to make that happen.

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Two things I wanted to put out on the center.

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This case is involving the benefits claims of the complaint.

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That means the statutory entitlement of the participants under Title IV of ERISA.

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One component of that is surely the guaranteed benefit, the minimum guaranteed PPC pays under 1322.

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There's also two other components of benefits that PPC can pay, very critical in this case.

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They would now allow PPC to pay the portion of the non-guaranteed benefit, and those depend on

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the level of plan assets that the plan has, and also the recoveries that PDTC receives on its claims.

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All of these components constitute the statutory title determination that PDTC makes for each participant.

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The other thing I want to- Can I ask a follow up question to what Mr. Shelley was saying with regard to potential conflicts of interest and whether that should affect

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our standard of review.

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I can see where there could be a potential conflict of interest if PBGC were a for-profit corporation with stockholders whose stock value rises and falls based on what PBGC does with corporate executives whose salaries

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Uh, and bonuses might depend on how much money PBGC does or doesn't have at a given moment.

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Um, but my impression is that PBGC is, there's nothing like that.

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And that there's really no individual person, uh, who makes more money, uh, gets extra benefits.

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Um,

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whether PBGC does everything Mr. Shelley wants or whether PBGC does nothing Mr. Shelley wants.

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Is my understanding of that correct or am I off?

[00:13:05] Speaker 02:
Your honor, that's a very good point you make.

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I think your understanding here is entirely correct.

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PBGC staff that makes these entitlement determinations has no financial stake in the outcome.

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We simply

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apply the law and the plan provisions as they are.

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We pay no more, no less.

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We don't have a financial stake in the outcome.

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We simply apply the law and whatever Congress decide as far as who gets what, that's what we pay.

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And in this case, the theory that the appellants have for PBGC having a financial incentive and financial staff indeed having a financial incentive to kick winners and losers has no merit at all.

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What deference do you think we owe you?

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Well, first, we believe that this case, again, is about the agency's determination of the statutory benefits elements of the participants.

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We believe Chevron deference has the District Court made clear that it applies to PBGC's interpretations of the ERISA statute.

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agree at all that there's any superseding authority that nullifies the precedent in Davis 1, where this court held that PBGC, even its role as statutory trustee, when it's interpreting the provisions of ERISA gets a chevron deference for its extensive knowledge in this area.

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So Davis 1 applies this case, that's clear this court

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had examined very similar issues.

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The council was practically the same as in this case.

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The briefing was extensive and it came to that conclusion, we believe, that PBGC and every aspect of its determination of statutory benefit, the statutory benefit element that it gets Chevron deference for those conclusions.

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Under the APA, the courts have universally considered PBGC as having

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their determinations of what effects and benefit determinations reviewed under the APA.

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Including a contract interpretation.

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Including a contract interpretation, PDDC's brief.

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I put note, Penn cites Seminole v. FERC DC Circuit 2017, and also Council City of New Orleans v. FERC 2012.

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So indeed,

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also for interpretation of contracts.

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Lastly, we would note that with respect to the determination of recovery-funded benefits, the statute specifically provides that PBGC determinations are reviewed under a clear and convincing standard.

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Claim two of the amended complaint, it concerns PBGC,

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and how we, according to the appellants, should deduct certain benefits that what's called the active pilot's act of the time of the plan termination, the payments that they receive via payments from the bankruptcy state to ALPA.

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And according to the appellants, that PBC should deduct

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the active pilot's benefits from the asset allocation.

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There's no support that PBGC should or even can do this.

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But that's claimed, too, that this payments through the bank state to the pilot union constitute a follow-on plan.

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And there's a long history of following plans.

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And indeed, PBGC's arguably its only case that the company was LTV, reviewed by Supreme Court in 1990,

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We explained to the Supreme Court why the filing policy is particularly important to PDGC, why this is something that potentially could cause an abuse of the insurance system.

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So we do definitely take that seriously.

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In this case though, the bankruptcy court did not find our arguments convincing that this was a

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a follow-on plan, indeed noted the complexities of the arrangement between the bankruptcy estate and payments to help and all the multiple considerations.

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And so, PBC decided not to pursue that line of argument.

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As the appeals board noted, there's nothing under ERISA that says that benefits that are satisfied outside of the plan are somehow taken to account.

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One thing that the appellants tried to analogize this to is to annuity contracts, which pay benefits, satisfy benefit liabilities out of the plan.

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That's something that's long-standing with pension plans under ERISA.

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In fact, the statute for PDGC that provides for termination under a stand termination expressly points to a plan satisfying its benefit liabilities through purchase of annuity contract.

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There's no support at all.

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that would suggest that these payments that were made, the Bank of the State to the Pilots' Union are anyway analogous.

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Claim three, this is the claim that Mr. Shelley says is central to their case about PC3 and what benefits are included in priority category three.

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It's a question of what date the plan's increased to its compensation limit that used to calculate the benefits

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what data was adopted, whether it needs the five-year look back under the priority category three statute.

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There's two different look backs in priority category three.

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This gives essentially a higher status to benefits of retirees.

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It requires that three years before a plan termination date, a participant has to be in pay status or could be in pay status.

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And more importantly to this case,

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and to this court's decision 10 years ago in the Davis case, and the benefits included in PC3 for the US Airways pilots, it had to do with when a benefit increase goes into effect for the five-year look back period.

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The Davis court squarely addressed the issue that PDC's interpretation of the statute, that a benefit increase does not go, become in effect until it becomes operative and payable,

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something that squarely applies here.

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The appeals board showed through the plan document, plan practice, through the extra increase to the 401A-17 limit, and to even the notice that the appellants provide to say if these increases are retroactive cast, that no event could these benefit increases be payable for

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July 1, 2002, which was less than the five-year look back, and therefore not includeable in PC3.

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All right.

[00:20:21] Speaker 04:
Now, before you sit down so that Mr. Shelley can respond to this, you've raised waiver with respect to claim four and claim five part two.

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Is that correct?

[00:20:43] Speaker 02:
We rated waivers with respect to one of the arguments that the panelists have with respect to claim four and then has to do with the pilot working agreement specifying in some places that there was an applied to active pilot, to retard pilots as well.

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We noted that even if

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And we know that the district court treated that as waived, but even if it didn't, that there is no merit to it.

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The pilot agreement is clear right at the beginning that it covers active pilots who are currently employed by Delta.

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And the fact that in certain portions of the agreement, there's a mention of retirees does not in any way show that the agreement as a whole is meant to recovery retirees as well as actives.

[00:21:39] Speaker 03:
questions first of all on the on the point you're just making isn't there a definition of the bargaining unit in the CBA I believe there is your honor and what does it say

[00:22:13] Speaker 02:
I'm afraid I don't have that page runner.

[00:22:17] Speaker 03:
All right.

[00:22:17] Speaker 03:
Well, my other question is about Count 5, Claim 5.

[00:22:22] Speaker 03:
I understand your practical, your explanation of why it's only practical for the agency to discount the numerator, I guess it is.

[00:22:39] Speaker 03:
But I don't understand yet

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I'd like to know what your legal argument is for applying a discount to the numerator when it's specifically required for the denominator and nothing is said in the statute about the numerator.

[00:22:56] Speaker 02:
Well, Your Honor, the appeals board reviewed this appellant's arguments closely.

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They looked at the structure

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of how PBGC, ERISA says that PBGC's claims are valued.

[00:23:12] Speaker 02:
We also note that the statute itself under 1322C talks about taking the value of recoveries over the amount of benefit liabilities at the plan termination date.

[00:23:24] Speaker 02:
It says value, it doesn't say amount has a certain date.

[00:23:29] Speaker 02:
The term value I think was constantly chosen.

[00:23:32] Speaker 03:
Did you say 1322C?

[00:23:34] Speaker 03:
Yes.

[00:23:37] Speaker 03:
Go on.

[00:23:38] Speaker 02:
That's 1322C3C, and it talks about taking the value of recoveries over the amount of benefit liabilities as of a certain date.

[00:23:50] Speaker 03:
I frankly don't recall that.

[00:23:56] Speaker 03:
Mr. Craddock?

[00:23:57] Speaker 03:
Yes.

[00:23:57] Speaker 03:
Is that in the brief?

[00:23:58] Speaker 03:
I don't recall it.

[00:24:01] Speaker 02:
Not sure if we noted that in the brief, but that's what the statute says.

[00:24:07] Speaker 02:
And so we noted in the brief that there's nothing that suggests that the provision on recoveries has anything to do with the mount as of a certain date.

[00:24:20] Speaker 03:
All right.

[00:24:20] Speaker 03:
Thank you.

[00:24:21] Speaker 04:
I thought, Mr. Ketrick, that the numerator

[00:24:31] Speaker 04:
swept in through its components, that is section 1362, 1363, 1364, the same requirement as in the denominator.

[00:24:46] Speaker 04:
In other words, it's expressed in the denominator, but it is incorporated in the numerator by virtue of the references to these sections.

[00:25:02] Speaker 02:
I think that's reasonable to say that sweeping them all together suggests that they should all be treated as of the plan termination date.

[00:25:12] Speaker 02:
I think that's something that is central to the Title IV program is that valuing everything as the plan termination date essentially allows PBGC to operate and implement the statutory provisions and matching assets to liabilities and so forth and implementing 1322C.

[00:25:32] Speaker 04:
All right, any more questions?

[00:25:37] Speaker 01:
If I could follow up on Judge Ginsburg's question about what's the scope of the bargaining unit in the collective bargaining agreement.

[00:25:47] Speaker 01:
I've got JA 1362, which is part of the pilot working agreement.

[00:25:56] Speaker 01:
And it says the union represents, quote, a majority of the airline pilots employed by the company and their designated airline pilots and the association represents them.

[00:26:10] Speaker 01:
Is that your understanding that with the pilot working agreement, there was a company and there was a union and the union represented the pilots

[00:26:26] Speaker 01:
the airline pilots employed by the company?

[00:26:30] Speaker 02:
Yes, Your Honor, that's an understanding.

[00:26:32] Speaker 02:
That was the appeals board's conclusion looking at the appellate's arguments, the pilot working agreements, provisions as a whole, and also looking at case law, which says that, which holds that a collective bargaining agreement is not presumed to be representing other than currently actively employed employees.

[00:26:50] Speaker 02:
And we'd also note that if it was read otherwise, that would basically

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calling the question the plans, Fourth Amendment implementing the annual benefit increases.

[00:27:06] Speaker 02:
And so the appeals board saw no reason to do so.

[00:27:11] Speaker 02:
The law certainly allows plans to, with respect to increasing 401A 17 compensation limits or 415B annual benefit limits, that plans do not have to adopt them.

[00:27:23] Speaker 02:
Those are simply the caps

[00:27:25] Speaker 02:
And so the plan was allowed to provide treatment for the two different groups.

[00:27:29] Speaker 02:
And that's what the plan did.

[00:27:31] Speaker 01:
And on the fourth amendment, my, my understanding is the pilot working agreement was arms league negotiation union on one side, company on the other side.

[00:27:44] Speaker 01:
I'm not as clear on the fourth amendment.

[00:27:47] Speaker 01:
Did the company just do that unilaterally or were they bargaining with somebody?

[00:27:52] Speaker 02:
No, that was the plan adopting essentially in a bill menning amendment to the plan document itself.

[00:27:59] Speaker 02:
The pilot working agreement can be a plan, operative plan document, not necessarily part of the formal plan document.

[00:28:08] Speaker 02:
And we conclude it was for the active employed Delta pilots as of the, I think it was June, 2001 date.

[00:28:17] Speaker 02:
But it wasn't until the fourth amendment that there was a plan

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amendment that affected the retirees, in other words, the appellates in this case.

[00:28:28] Speaker 02:
And that was in 2003.

[00:28:38] Speaker 04:
All right.

[00:28:39] Speaker 04:
Are we ready for the rebuttal?

[00:28:42] Speaker 04:
Mr. Shelley, you have, I think you have some time remaining.

[00:28:47] Speaker 04:
Why don't you take two minutes in any event?

[00:28:50] Speaker 00:
Thank you, Your Honor.

[00:28:51] Speaker 00:
I'd like to address the question you, Judge Henderson, asked about claim four and the waiver issue.

[00:28:59] Speaker 00:
The pilots didn't waive this issue that the working agreement covers retirees or addresses retiree interests as well as actives interests.

[00:29:09] Speaker 00:
And in fact, at JA 737, we specifically had this language.

[00:29:13] Speaker 00:
Nothing in the actual language of Section 26G can reasonably be read to support the PBGC's inference that the plan amendment applied only to certain plan participants.

[00:29:24] Speaker 00:
The district court was very harsh in saying that wasn't good enough.

[00:29:28] Speaker 00:
You had to scope out the argument in every single detail, even though the PBGC had hardly even told the participants what they were doing before the appeal was raised.

[00:29:40] Speaker 00:
But in any event, there's no issue exhaustion required under at least ERISA cases like Wallace and Vought.

[00:29:47] Speaker 00:
So we did appropriately raise it, but wouldn't have had to because a fiduciary is supposed to raise appropriate issues.

[00:29:53] Speaker 00:
On the substance of the working agreement, the fact that it was negotiated between a union and the employer is one thing, but the reality is, is that the document actually addresses retirees.

[00:30:04] Speaker 00:
I'd point the court to point the appendix, page 1616, where there's a whole section on retiree medical benefits.

[00:30:13] Speaker 03:
And then in- Mr. Shelley.

[00:30:17] Speaker 03:
The few references that I checked in the agreement that refer to retirees are actually referring to the retirement benefits or conditions for current employees when they later retire.

[00:30:35] Speaker 00:
That's not true, Your Honor.

[00:30:36] Speaker 00:
In fact, in various spots such as page JA 1616 and also I think in sections

[00:30:43] Speaker 00:
It's, I believe, 26K.

[00:30:46] Speaker 00:
It talks about retirees who retire after, I think, 1997.

[00:30:51] Speaker 00:
So these are people who are already retired at the time the working agreement is signed in 2001.

[00:31:00] Speaker 00:
um so it's it's it may be that is being negotiated the retirees aren't at the table but the plan is being amended with respect to also all all sorts of people including including retirees you said 1616 yes 1616

[00:31:30] Speaker 00:
Okay, so on the bottom of page JA-1616, effective for pilots who retire after January 1st, 1997, the following provisions will apply.

[00:31:40] Speaker 00:
Those are pilots who are not active currently.

[00:31:45] Speaker 03:
What's the date of the agreement?

[00:31:47] Speaker 00:
Pardon me?

[00:31:48] Speaker 03:
What is the date of the agreement?

[00:31:50] Speaker 00:
I believe it is June 2001.

[00:31:56] Speaker 00:
And then if you look at page 1644, excuse me, not 1644, but 1648, again, I think in provision K9, as of the effective date, permit Delta pilot retirees to continue to receive full pension benefits.

[00:32:17] Speaker 00:
So the effective date of the agreement, they're talking about people who are already retired.

[00:32:20] Speaker 00:
And then on the next page, there's a reference in K13 to,

[00:32:27] Speaker 00:
for purpose, again, to the retirement plan and those who terminate employment after May 1st, 2000, which is also before the date of the agreement.

[00:32:40] Speaker 03:
Let's go back and start for a moment at 1616.

[00:32:44] Speaker 03:
Effective for pilots who retire after January 1, 1997.

[00:32:50] Speaker 03:
Why doesn't it say retired if they're already retired?

[00:32:56] Speaker 00:
because I think that they didn't want to cover retirees before before well I think that the wording is intended to limit this particular aspect of the of the agreement to those who retired after a certain date as opposed to those who retired before a certain date as you just said retired yes I did say that your honor but I don't think there's

[00:33:20] Speaker 00:
someone could retire in July of 2001, effective even, retroactively effective to January 1st, 1997.

[00:33:29] Speaker 00:
I'm not aware that that's an option under the plan or in reality.

[00:33:36] Speaker 03:
And then at 1648, number nine at the bottom.

[00:33:42] Speaker 00:
Yes.

[00:33:44] Speaker 03:
Where does this, this all comes from a provision saying,

[00:33:48] Speaker 00:
leave previous page is that right yes so i think it provided in section 26 k3b yes effective so it says as so this would be k it starts with k on page ja 1646 the the preamble is the retirement plan mpp bridge plan and supplemental annuity plan will be amended to reflect the following number nine as of the effective date

[00:34:17] Speaker 00:
permit Delta pilot retirees to continue to receive full pension benefits during the periods of time they are employed by Delta Airlines global staffing services or its successors.

[00:34:27] Speaker 03:
That's okay.

[00:34:28] Speaker 03:
It's all about something that will be amended in the future.

[00:34:32] Speaker 03:
It will be amended to the benefit of people.

[00:34:35] Speaker 03:
Some people are already retired.

[00:34:38] Speaker 03:
Correct?

[00:34:38] Speaker 00:
Correct.

[00:34:39] Speaker 00:
Yes.

[00:34:40] Speaker 00:
And the next, excuse me.

[00:34:42] Speaker 03:
You go ahead.

[00:34:43] Speaker 00:
And then the next page, um,

[00:34:45] Speaker 00:
purposes of determining retirement benefits under the retirement plan, the bridge plan, for pilots who retire or terminate employment after May 1st, 2000.

[00:34:54] Speaker 00:
So that's again pre, these are people who would have already been retired at the time of the agreement.

[00:35:01] Speaker 00:
Our point is that it is a very

[00:35:04] Speaker 00:
parsimonious reading of this agreement to say that it only covers actives.

[00:35:11] Speaker 00:
And in fact, it covers many retirement issues for people who are already retired.

[00:35:15] Speaker 00:
And it was intended to do so.

[00:35:17] Speaker 00:
And when it wanted to address just active pilots, it said so.

[00:35:22] Speaker 00:
And I think those provisions assist in that construction.

[00:35:27] Speaker 03:
And do you have access to the definition of the bargaining unit?

[00:35:32] Speaker 00:
It was, if I don't recall the page it was on, but I would if I guess it was 1362 was the page.

[00:35:48] Speaker 03:
It looks right.

[00:35:49] Speaker 00:
Yes.

[00:35:50] Speaker 00:
And I don't I don't disagree that that this is not an agreement in which some retiree organization was signing on the bottom line, but Delta.

[00:36:01] Speaker 00:
as Delta as the settlor, as the sponsor of the plan had the ability in whatever capacity and negotiating with whoever to amend the retirement plan and did so.

[00:36:14] Speaker 00:
And it is in section 26 G where it said that whenever benefits could be paid, whenever, for instance, congressional increases occurred, they shall be immediately effective for our plan.

[00:36:33] Speaker 03:
Thank you.

[00:36:36] Speaker 01:
Can I ask Mr. Shelley, going back to the question about the numerator and the denominator in your claim five and whether or not the interest should have been applied.

[00:36:52] Speaker 01:
Let me walk through how I'm reading the statute and you can tell me where I go off the rails.

[00:37:02] Speaker 01:
but I've got the red addendum, addendum to the appellee's brief.

[00:37:10] Speaker 01:
Okay.

[00:37:10] Speaker 01:
And the first statute in it is 1322.

[00:37:13] Speaker 01:
And I'm on page three of that addendum, which is the statute that Mr. Kretick mentioned.

[00:37:26] Speaker 01:
It's 1322, C, three,

[00:37:33] Speaker 01:
C. And there, it describes the ratio, the recovery ratio.

[00:37:43] Speaker 01:
And it's got a Roman numeral one and a Roman numeral two.

[00:37:49] Speaker 01:
I think Roman numeral two is clear enough.

[00:37:54] Speaker 01:
It's the amount as of the termination date.

[00:37:59] Speaker 01:
quote, amount, dot, dot, dot, quote of the termination date.

[00:38:04] Speaker 01:
So then the other, the question is, well, what's the other side of the ratio?

[00:38:08] Speaker 01:
And it says the value, dot, dot, dot, under section 1362, among other sections.

[00:38:18] Speaker 01:
So I take that to mean I go to section 1362, which is on page 19 of the addendum.

[00:38:29] Speaker 01:
And when I get there, I'm at 1362 B1A.

[00:38:31] Speaker 01:
1362 B1A on page 19 of the addendum.

[00:38:44] Speaker 01:
And there, it talks about the amount, I'm on the second line of it, dot dot dot, as of the termination date.

[00:38:55] Speaker 01:
And then in the next line, it talks about

[00:38:58] Speaker 01:
interest, dot, dot, dot, calculated from the termination date.

[00:39:04] Speaker 01:
So it looks to me like, not only is there some kind of logic to Mr. Kretick's argument that when it comes to the numerator and denominator, we should be comparing apples to apples, but it seems like the text of the statute probably requires that we make

[00:39:23] Speaker 01:
the numerator, apples, if the denominator is gonna be apples, we can all agree the denominator is the amount as of the termination date.

[00:39:33] Speaker 01:
And when we look to 1362, we see with regard to the numerator, it is also saying the amount as of the termination date with interest calculated from the termination date.

[00:39:46] Speaker 01:
So I don't pretend that I'm sure of this.

[00:39:51] Speaker 01:
And I suspect you disagree.

[00:39:52] Speaker 01:
So please tell me if I'm wrong, tell me why I'm wrong.

[00:39:59] Speaker 00:
Well, Section 1362, B1A, I don't believe addresses the recoveries.

[00:40:08] Speaker 00:
It addresses liabilities when it mentions the termination date.

[00:40:14] Speaker 00:
And importantly, a reading like this will lead to the result that if the value of the recoveries would decline when going back to the termination date.

[00:40:30] Speaker 00:
So let's say there's a stock market crash like there was in March of this year.

[00:40:34] Speaker 00:
and the recovery comes immediately after that.

[00:40:36] Speaker 00:
If you have to go backwards and not just in that case, not discount, but upgrade the value of the recoveries, they could be worth 50, maybe 60% more than what they were the actual amount.

[00:40:47] Speaker 00:
And the way this formula works, it would result in more money having to be accorded for the allocation process than the trustee actually collected.

[00:40:57] Speaker 00:
And so that's why I think Congress didn't include this termination date in the numerator because it's simply,

[00:41:04] Speaker 00:
took what was collected and then put it into a formula.

[00:41:08] Speaker 00:
There would be as much reason not to want to upgrade the value as to discount the value.

[00:41:18] Speaker 00:
So I think it was purposeful.

[00:41:19] Speaker 00:
that the provision in C1 of 1322 does not reference the termination date, because otherwise you could have these anomalous situations where the trustee has to make up the funds from its own money.

[00:41:32] Speaker 00:
And if the PBGC isn't the trustee, the private trustee certainly has no money at all to access.

[00:41:39] Speaker 03:
Mr. Shetley, Mr. Kretick has now highlighted a second distinction between C1 and C2.

[00:41:49] Speaker 03:
you've been focusing on the absence of a reference to the termination date and the numeral.

[00:41:55] Speaker 03:
But he's drawn our attention to the difference between the value and the amount in one and two respectively.

[00:42:02] Speaker 03:
What do you make of that?

[00:42:04] Speaker 00:
Well, it's an argument that hadn't been raised yet.

[00:42:07] Speaker 00:
So it's a new argument.

[00:42:10] Speaker 00:
It is a different word.

[00:42:10] Speaker 00:
I'm quickly looking up what the word value means in the dictionary, which is the monetary worth of something.

[00:42:21] Speaker 00:
And is it synonymous with amount?

[00:42:25] Speaker 00:
Probably.

[00:42:26] Speaker 00:
Could it have a slightly different meaning than amount?

[00:42:29] Speaker 00:
Conceivably.

[00:42:30] Speaker 03:
But you're urging us to focus on the difference between two adjacent sections where there's presumably some, you're telling us, intent to distinguish between the termination date in two and something else in one.

[00:42:50] Speaker 03:
And now again, we have two adjacent sections with a difference.

[00:42:54] Speaker 03:
And I don't see how we can treat that as insignificant and the other as significant.

[00:43:00] Speaker 00:
Yes.

[00:43:00] Speaker 00:
Well, if the word value can be expanded to include a current versus prior value, I think you'd have to have a different word in front of it in order to allow the discounting that the PBGC did.

[00:43:18] Speaker 00:
It's earlier value or past value as opposed to present value.

[00:43:24] Speaker 00:
So I don't think the word value alone can answer the question of why the termination date wasn't in there.

[00:43:28] Speaker 00:
And again, I go back to the

[00:43:30] Speaker 00:
I go back to the point that Congress would have a purpose in wanting the exact value of the recoveries at the time of their actual recovery to be the threshold.

[00:43:45] Speaker 00:
Because if you do this discount, you're going to have to do upgrading and take into account greater amounts that might have been lost because of a loss in the asset.

[00:43:56] Speaker 01:
You mentioned that you think 1362 is talking about liabilities, not recoveries.

[00:44:06] Speaker 01:
But 1322 tells us to look to 1362.

[00:44:18] Speaker 01:
So when I looked at 1362,

[00:44:22] Speaker 01:
I agree with you that it's using the word liability, but it's not at least so far as I can tell, using the word recovery anywhere.

[00:44:33] Speaker 01:
So it's 1322 is saying, let's do some, let's figure out the value of the recovery and let's figure out that value based on 1362.

[00:44:46] Speaker 01:
We have to use 1362.

[00:44:48] Speaker 01:
We have to use some part of 1362.

[00:44:51] Speaker 01:
And so far as I can tell, no part of 1362 mentions recoveries.

[00:44:57] Speaker 01:
And since we have to use some part of it, it seems like the most logical place to look is when it's describing how you figure out the amount of something, even though 1362, in its own context, talking about the amount of liability.

[00:45:13] Speaker 01:
And I could be missing recovery.

[00:45:15] Speaker 01:
I mean, it's not a particularly short

[00:45:17] Speaker 01:
1362 is not particularly short, so it may be in there, I just don't see it.

[00:45:24] Speaker 00:
I think that the symmetry between termination date in 1662 and the use of termination date in 1322C

[00:45:36] Speaker 00:
is related again to the liabilities, because the first part of the product in this formula is the outstanding amount of benefit liabilities under the plan, including interest calculated from the termination date.

[00:45:49] Speaker 00:
And this is under 1322C2A.

[00:45:55] Speaker 00:
And then you have the applicable recovery ratio, where again, there's no mention of dating.

[00:46:00] Speaker 00:
And so I think

[00:46:01] Speaker 00:
this number can be very large, this outstanding amount of benefit liabilities, and it's unrelated to the actual recovery amount.

[00:46:09] Speaker 00:
And that's what causes the prospect of the trustee having to pay more than he or she actually collects back to the plan.

[00:46:16] Speaker 00:
And so I think the 1362 language closely tracks what's in 1322 C to big A, as opposed to the B part, which then is explained slightly later.

[00:46:32] Speaker 00:
If I could make one more point, although I know I'm well into my time, and that's back on the conflict of interest point that Judge Walker raised, in that we don't say that any individual within the PBGC had a monetary interest in order to limit the recoveries of the retired pilots.

[00:46:50] Speaker 00:
But MetLife versus Glenn, which is the risk case that talks about conflicts of interest, talks about not science or in the mind of the decision maker, but structural conflicts of interest that implicitly can cause

[00:47:01] Speaker 00:
the decision maker to rule one way or the other.

[00:47:03] Speaker 00:
And here is, we have a situation where the PBGC regularly

[00:47:07] Speaker 00:
notes that it doesn't have sufficient funds to meet its obligations and goes to Congress for additional appropriations to the extent it can, raises insurance premiums.

[00:47:18] Speaker 00:
And it's a structural conflict of interest.

[00:47:21] Speaker 00:
There's no question that by delaying the payments and giving them to active beneficiaries as opposed to retired beneficiaries, the PBGC earned money for its own operations, probably millions and millions of dollars, and that shouldn't be disregarded.

[00:47:37] Speaker 00:
Thank you.

[00:47:37] Speaker 04:
All right.

[00:47:38] Speaker 04:
If there are no more questions, gentlemen, the case is submitted.

[00:47:42] Speaker 04:
Thank you.

[00:47:44] Speaker 00:
Thank you.