Beck v. Pace International Union

Crown Paper Company and its parent company, Crown Vantage, Inc. (collectively, Crown), employed 2,600 workers in seven paper mills. Crown sponsored multiple defined-benefit pension plans. Pace International Union (union) (plaintiff) represented Crown employees who were participants in the plans. Crown filed for bankruptcy and proceeded to liquidate its assets. With respect to the pension plans, the Employment Retirement Income Security Act of 1974 (ERISA) specified procedures for terminating single-employer pension plans and for final distribution of a plan’s assets. Specifically, ERISA required the plan administrator to either purchase annuities to satisfy all benefit liabilities under the plan or otherwise fully provide all benefit liabilities under the plan. The union proposed that Crown terminate the plans by merging them with the union’s own multiemployer plan. Crown, however, discovered that it had overfunded some of its pension plans and that after purchasing annuities sufficient to satisfy its obligations to the plan participants and beneficiaries, Crown would retain a projected $5 million reversion for its creditors. The union’s plan would have required Crown to transfer all assets, including the $5 million, to the multiemployer plan. Crown therefore rejected the union’s proposal and proceeded with the annuity purchase. The union and two plan participants filed an adversary proceeding in the bankruptcy court against the trustee of the Crown bankruptcy estate (defendant), alleging that Crown’s directors had breached their fiduciary obligations by neglecting to give due consideration to the union’s merger proposal. The bankruptcy court ruled in favor of the union and ordered that the $5 million reversion be distributed for the benefit of plan participants and beneficiaries. The district court and court of appeals both affirmed, and the United States Supreme Court granted the trustee’s petition for certiorari.