making its determination to see if the factors are relevant.
The PBGC considered the effect of Harvard's bankruptcy. If the plans are terminated after the effective date of the Harvard's reorganization plan, Harvard and its subsidiaries will be severed from the controlled group and will bear no responsibility for any subsequent termination liability to PBGC resulting from the plans. On the other hand, if the plans are terminated prior to the effective date of the reorganization, the Harvard and its subsidiaries would incur termination liability. See 29 U.S.C. § 1362. Under the reorganization plan, Harvard and its subsidiaries would pay, over a two-year period, the PBGC claims for termination liability as general unsecured claims. (Adm. Rec. at 81-82.)
Additionally, PBGC determined that if the plans are not terminated now, they will likely be terminated in the future. FEL's financial condition is poor and deteriorating. FEL is "technically insolvent" with a "current negative worth in excess of $ 15,000,000 . . . ." (Adm. Rec. at 214.) FEL has operated at a loss for at least two years and is currently $ 10 million in arrears on its rent. The real estate on which FEL conducts its business is pledged as security, by another member of the controlled group, for three separate mortgages totaling approximately $ 38 million. FEL itself has an outstanding loan of approximately $ 10 million, secured by all of its assets. All four loans are in default. (Adm. Rec. at 42). PBGC determined that if FEL were forced into bankruptcy, it would probably not have sufficient assets to pay unsecured creditors, which likely would include PBGC claims for termination liability. Additionally, PBGC determined that the other members of the controlled group have no net worth. (Adm. Rec. at 213-14.)
In short, PBGC decided that if it did not terminate the plans prior to the effective date of the Harvard's reorganization plan, the plans would likely be terminated in the future at a time when FES and the remaining members of the controlled group could pay little if any of the termination liability. As a result, PBGC determined that the possible long-run loss to PBGC with respect to the plans may reasonably be expected to increase unreasonably if PBGC failed to terminate the plans while Harvard was still a member of the controlled group. The factors on which PBGC based this determination strike this court as relevant, and the determination reflects no clear error in judgment. As a result, the PBGC's determination is not arbitrary and capricious and, thus, shall not be disturbed by this court.
The PBGC's application is granted. An order accompanies this opinion. No costs.
EDITOR'S NOTE: The following court-provided text does not appear at this cite in 798 F. Supp. 239.
ORDER - September 2, 1992, Filed and Entered
Upon consideration of the application of the Pension Benefit Guaranty Corporation ("PBGC") for an order to show cause, appointment of a statutory trustee and a decree of pension plan termination ("Application"), the written submissions of the PBGC and respondent, FEL Corporation ("FEL"); and the court having held a hearing on the Application on September 2, 1992;
IT IS on this 2nd day of September, 1992,
ORDERED that the FEL Corporation Pension Plan for Hourly Employees, the Murlin Manufacturing Corporation Hourly Employees' Retirement Plan and the Murlin Manufacturing Corporation Salaried Employees' Retirement Plan (collectively referred to as "Plans") are terminated under 29 U.S.C. § 1342(c); and it is further
ORDERED that the termination date of the Plans is established under 29 U.S.C. § 1348(a)(4) as August 6, 1992; and it is further
ORDERED that the PBGC is appointed trustee of the Plans under 29 U.S.C. § 1342(c), with all the powers conferred by 29 U.S.C. § 1342(d), or otherwise granted by law; and it is further
ORDERED that FEL, Continental Bank, Chicago, Illinois and Central Bank, Freehold, New Jersey, and any other person or entity having possession, custody or control of any records, assets or other property of Plans shall transfer, convey and deliver them upon request to the PBGC.
CLARKSON S. FISHER
United States District Judge