Great Atlantic Withdrawal Liability Debtors Brief

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James H.M. Sprayregen, P.C. Paul M. Basta Ray C. Schrock KIRKLAND & ELLIS LLP 601 Lexington Avenue New York, New York 10022 Telephone: (212) 446-4800 Facsimile: (212) 446-4900 - and Michael B. Slade Kristina K. Alexander KIRKLAND & ELLIS LLP 300 North LaSalle Chicago, Illinois 60654 Telephone (312) 862-2000 Facsimile: (312) 862-2200 Counsel to the Reorganized Debtors UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK In re: Chapter 11
THE GREAT ATLANTIC & PACIFIC TEA Case No. 10-24549 (RDD) COMPANY, INC., et al., Jointly Administered Reorganized Debtors. SUPPLMENTAL BRIEF IN SUPPORT OF REORGANIZED DEBTORS OBJECTION TO THE ADMINISTRATIVE CLAIM FILED BY THE FOOD EMPLOYERS LABOR RELATIONS ASSOCIATION AND UNITED FOOD AND COMMERCIAL WORKERS PENSION FUND [DOCKET NO. 3628]
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TABLE OF CONTENTS Page Background ....................................................................................................................................1 Objection.........................................................................................................................................4 A. The Administrative Claim Should Be Valued at $0............................................5 i. ii. iii. B. Method Advocated by the Reorganized Debtors .........................................8 Alternative Method 1 (the New Employer Method) ................................9 Alternative Method 2 (Petition Date vs. Withdrawal Date) ......................10
FELRAs Days Elapsed Method for Calculating the Administrative Claim Violates the Bankruptcy Codes Priority Rules .....................................11
Reservation of Rights ...................................................................................................................14 Conclusion ....................................................................................................................................14
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TABLE OF AUTHORITIES Cases Amalgamated Ins. Fund v. William B. Kessler, Inc., 55 B.R. 735, 740 (S.D.N.Y. 1985) In re A.C.E. Elevator Co., Inc., 347 B.R. 473, 479 (Bankr. S.D.N.Y. 2006) In re Bethlehem Steel Corp., 479 F.3d 167, 172-73 (2d Cir. 2007) 6 5 7
In re Caldor, Inc.-NY, 240 B.R. 180, 192-93 (Bankr. S.D.N.Y. 1999) aff'd sub nom. Pearl-Phil GMT (Far E.) Ltd. v. Caldor Corp., 266 B.R. 575 (S.D.N.Y. 2001) 11 In re CF & I Fabricators of Utah, Inc., 150 F.3d 1293, 1299 (10th Cir. 1998) In re Chateaugay Corp., 944 F.2d 997, 1004 (2d Cir. 1991) In re Cott Corp., 47 B.R. 487, 489 (Bankr. D. Conn. 1984) In re Great Ne. Lumber & Millwork Corp., 64 B.R. 426, 428 (Bankr. E.D. Pa. 1986) In re HNRC Dissolution Co., 396 B.R. 461, 480-81 (B.A.P. 6th Cir. 2008) In re Marcal Paper Mills, Inc., 650 F.3d 311 (3d. Cir. 2011) In re Pub. Ledger, Inc., 161 F.2d 762, 768-69 (3d Cir. 1947) In re Sunarhauserman, Inc., 184 B.R. 279 (Bankr. N.D. Ohio 1995) In re The Great Atlantic & Pacific Tea Co., Inc., No. Civ. 2809(ER), 2013 WL 1310330 (S.D.N.Y. March 31, 2013) In re United Dept Stores, Inc., 49 B.R. 462, 466 (Bankr. S.D.N.Y. 1985) McMillan v. LTV Steel, Inc., 555 F.3d 218, 226 (6th Cir. 2009) 6 10 14 13 6 7 6 8 4 6 6
Trustees of Amalgamated Insurance Fund v. McFarlins, Inc., 789 F.2d 98 (2d Cir. 1986) 6, 13, 14 Statutes 11 U.S.C. 503(b)(1)(A) ................................................................................................................ 5 29 U.S.C. 1385 ............................................................................................................................. 2
ii
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The Great Atlantic & Pacific Tea Company, Inc. (A&P) and certain affiliates, as reorganized debtors and debtors in possession (the Reorganized Debtors, or, prior to emergence from chapter 11, the Debtors) hereby submit this supplemental brief in support of their objection, filed May 15, 2012 [Docket No. 3775] (the Objection) to the Motion for Entry of an Order Allowing Administrative Expense Claim [Docket No. 3628] filed by the Food Employers Labor Relations Association and United Food and Commercial Workers Pension Fund (FELRA) seeking allowance of an administrative claim (the Administrative Claim).1 When calculated correctly, the value of FELRAs Administrative Claim is zero. Accordingly, FELRAs Administrative Claim should be disallowed. Background 1. Date). The Debtors filed these Chapter 11 cases on December 12, 2010 (the Petition As of the Petition Date, the Debtors were parties to approximately 34 collective
bargaining agreements (the CBAs) with 14 local unions affiliated with the United Food and Commercial Workers (the UFCW). The CBAs obligated the Debtors to, among other things, pay specific wages, provide employees certain benefits, and make payments into certain multiemployer defined benefit pension plans. One of the multi-employer defined benefit pension plans into which the Debtors paid as of the Petition Date was FELRA. 2. Specifically, on the Petition Date, Super Fresh Food Markets, Inc. employed
approximately 1,385 employees represented by UFCW Local 27 for which Super Fresh contributed to FELRA. During the Chapter 11 Cases and as part of the reorganization process, that number was ultimately reduced to zero.
Capitalized terms used but not defined herein shall have the meanings set forth in the Objection and the Debtors First Amended Joint Plan of Reorganization Pursuant to Chapter 11 of the United States Bankruptcy Code [Docket No. 3417] (the Plan of Reorganization or Plan).
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3.
First, in approximately June of 2011, the Debtors sold 12 of the so-called
Southern Stores operating under the Super Fresh banner and began winding down the business of another 13 stores. This process left only 3 storestwo in Maryland and one in Delaware with employees covered by Local 27s CBA requiring contributions to FELRA. All but
approximately 100 FELRA-covered employees were terminated, triggering a partial withdrawal from FELRA and giving rise to a prepetition claim subject to discharge. Anticipating the Debtors pension fund withdrawal liability, FELRA asserted claims against each of the Debtors alleging estimated withdrawal liability of $76,846,817.2 4. Second, on February 1, 2012 (the Withdrawal Date), the Debtors entered into
an agreement with Local 27 completely and permanently eliminating the Debtors obligations to contribute to FELRA, effectuating a complete withdrawal from FELRA.3 The Debtors have made no contributions to FELRA since the Withdrawal Date. 5. The Debtors Plan classified FELRAs withdrawal liability claim as a Class J
Pension Withdrawal Claims.4 On January 24, 2012, FELRA objected to the Plan on various grounds, including that the Plan failed to provide administrative priority treatment to the alleged
See (I) Objection of the Food Employers Labor Relations Association and United Food and Commercial Workers Pension Fund to Confirmation of the Debtors Joint Plan of Reorganization Pursuant to Chapter 11 of the United States Bankruptcy Code and (II) Request for Reclassification of Claims, filed Jan. 24, 2012 [Docket No. 3240] (FELRA Plan Objection), at 16. Employee Retirement Income Security Act (ERISA) 4203(a), 29 U.S.C. 1385 (complete withdrawal triggered when employer no longer has obligations to make contributions to a multiemployer pension plan). Class J Pension Claims are defined under the Plan as follows: Any and all Claims against the Debtors arising from the Debtors complete or partial withdrawal from any Multiemployer Pension Plans related to actions or events occurring prior to the Effective Date, including: (a) Amalgamated Meat Cutters and Retail Food Store Employees Union Local 342 Pension Fund; (b) Central States, Southeast and Southwest Areas Pension Fund; (c) Retail, Wholesale and Department Store International Union and Industry Benefit and Pension Funds; (d) UFCW Local 1262 and Employees Pension Fund; (e) UFCW and Participating Food Industry Employers TriState Pension Fund; and (f) Food Employers Labor Relations Association and United Food and Commercial Workers Pension Fund.
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post-petition portion of FELRAs withdrawal liability claims.5 FELRA argued at the Debtors confirmation hearing that its claims should not be classified as Class J Pension Withdrawal Claims, and this Court confirmed the Plan over FELRAs objection.6 6. On April 10, 2012, FELRA appealed this Courts decision to the District Court.
The next day, FELRA filed the Motion at issue here, alleging total withdrawal liability of $78,459,613 and seeking to have $8,316,969 of that amount treated as an administrative priority claim under the Plan. The claim was submitted subject to FELRAs then-pending appeal of this Courts order confirming the Plan. 7. On May 15, 2012, the Reorganized Debtors objected to FERLAs Motion on the
basis that no portion of the Debtors withdrawal liability was entitled to administrative priority because the claim did not reflect liability for benefits earned by the Debtors employees for services rendered post-petition.7 FELRA filed a response on July 24, 2012.8 8. On July 27, 2012, the parties appeared before the Court and jointly proposed to
postpone adjudication of the matter pending discovery and revised calculations. The parties thereafter engaged in briefing and limited discovery on the Administrative Claim, including expert depositions, regarding the appropriate methodology for calculating the Administrative Claim (if any). On January 10, 2013, FELRA filed a Notice of Supplemental Exhibit to the Motion, which amended FELRAs previous withdrawal liability claim to reflect FELRAs final
FELRA Plan Objection at 51-56. 2/6/2012 Tr. at 80-123; 2/27/2012 Tr. at 75-81. See Reorganized Debtors Objection to the Administrative Claims of United Food and Commercial Workers, Local 464A and the Food Employers Labor Relations Association and United Food and Commercial Workers Pension Fund, filed May 15, 2012 [Docket No. 3775]. See FELRA Pension Funds Reply to Reorganized Debtors Objection to the Funds Administrative Expense Claim, filed July 24, 2012 [Docket No. 3890] (FELRA Reply).
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calculation of the Debtors withdrawal liability. FELRA now asserts a total withdrawal liability claim in the amount of $77,420,079, and has revised the Administrative Claim to $7,219,172. 9. On March 31, 2013, the District Court dismissed FELRAs appeal.9 FELRA did
not appeal the District Courts ruling. 10. The parties are currently scheduled to appear before this Court for an evidentiary
hearing on June 27, 2013 at 10:00 a.m. The parties have exchanged witness declarations, which have been submitted for this Courts consideration and are discussed herein, and the witnesses will be available for cross-examination, if necessary, at the hearing.10 Objection 11. As a preliminary matter, the dispute between the Reorganized Debtors and
FELRA appears to be one of law, not fact. The Reorganized Debtors dispute with FELRA is a dispute over methodology and bankruptcy law, not mathematics. For its part, FELRA does not dispute any of the calculations done by Darren French, the Reorganized Debtors expert.11 Critically, FELRA does not dispute that the Reorganized Debtors post-petition contributions to FELRA exceeded by some margin the value of any benefits accrued by the Debtors employees during the post-petition period.12 12. Regardless, whether as a matter of law or fact, FELRAs calculation of its
administrative claim defies the applicable law in the Second Circuit and elsewhere. When the
9
In re The Great Atlantic & Pacific Tea Co., Inc., No. Civ. 2809, 2013 WL 1310330 (S.D.N.Y. March 31, 2013), attached hereto as Exhibit A. See Declaration of Kevin Woodrich, FSA, EA, MAAA, Witness for the Food Employers Labor Relations Association and United Food and Commercial Workers Pension Fund, filed December 21, 2012 [Docket No. 4094] (the Woodrich Declaration), and the Amended Declaration of Darren French in Support of Reorganized Debtors' Objection to FELRA's Motion for Entry of an Order Allowing an Administrative Expense Claim, filed January 23, 2013 [Docket No. 4119] (the French Declaration), attached hereto as Exhibit B. See infra 22, 25, and 27. Id.
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applicable bankruptcy law is applied to the facts here, the correct calculation of FELRAs administrative claim is $0 because any benefit to the estate post-petition was far outweighed by the Debtors post-petition contributions to the Fund. A. 13. The Administrative Claim Should Be Valued at $0 FELRA seeks allowance and payment of an Administrative Claim for $7,219,172.
The methodology used by FELRA to calculate its claim ignores this Courts statement at the confirmation hearingthat if any administrative claim existed, it could only be possibly a tiny sliver that would be attributable to the services provided by the covered union workers for the post-petition period (2/6/12 Tr. at 119:17-19) (emphasis added)and is wrong as a matter of law. 14. Administrative priority under 503(b)(1)(A) of the Bankruptcy Code is granted
to a claim only for the actual, necessary costs and expenses of preserving the estate, including wages, salaries, and commissions for services rendered after the commencement of the case. (Id.) (emphasis added). And, as a baseline principle, the Second Circuit has consistently
recognized that statutory priorities are narrowly construed, In re Bethlehem Steel Corp., 479 F.3d 167, 172 (2d Cir. 2007) (internal quotation marks omitted), and that the party seeking administrative priority carries the burden of proving entitlement to priority payment as an administrative expense, id. at 172 (internal quotation marks omitted). 15. Basic precepts of bankruptcy law dictate that any amount of withdrawal liability
related to benefits earned before the Petition Date cannot constitute an administrative claim, because the consideration supporting that withdrawal liability is the past labor of the employees covered by the plan. In re A.C.E. Elevator Co., Inc., 347 B.R. 473, 479 (Bankr. S.D.N.Y. 2006) (internal citations omitted). In fact, due to the tenuous or non-existent connection between
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withdrawal liability and actual services rendered post-petition, many courts have held that withdrawal liability should not be afforded administrative priority at all.13 And courts
consistently find that benefits earned as a result of prepetition labor cannot give rise to an administrative claim under the Bankruptcy Code.14 16. The Second Circuits controlling case on this issue, Trustees of Amalgamated
Insurance Fund v. McFarlins, Inc., 789 F.2d 98 (2d Cir. 1986), confirms that benefits accrued as a result of work performed pre-petition are not entitled to administrative priority. In
McFarlins, the Court held that withdrawal liability reflecting benefits accrued by employees prepetition was a prepetition claim, even where the withdrawal occurred more than seven months into the chapter 11 case. See 789 F.2d at 10304. The Second Circuit denied the administrative claim because the consideration supporting the withdrawal liability was prepetition labor, and payments made to guarantee pension benefits already earned by those employees covered by the Plan cannot constitute an administrative claim. 789 F.2d at 101 (emphasis added). 17. Over 20 years later, the Second Circuit affirmed the principles that form the basis
for its holding in McFarlins: (i) withdrawal liability is the means by which the employer funds
13
See, e.g., Amalgamated Ins. Fund v. William B. Kessler, Inc., 55 B.R. 735, 740 (S.D.N.Y. 1985) (Withdrawal liability, on the other hand, is imposed on employers withdrawing from multiemployer pension plans to make up for past failures by employers to fund fully pension plan benefits. Essentially, withdrawal liability is belated compensation for services provided before the start of bankruptcy proceeding. As such, a claim for withdrawal liability is not entitled to administrative expense status.); In re United Dept Stores, Inc., 49 B.R. 462, 466 (Bankr. S.D.N.Y. 1985) (Withdrawal liability, in contrast, is not direct compensation to any employee, nor is it direct compensation for the termination of the employment relationship. Rather, it is an obligation of the debtor pursuant to the MPPA[A], to a designated group of beneficiaries, some of which have absolutely no connection to the bankruptcy.) (internal citation omitted); In re HNRC Dissolution Co., 396 B.R. 461, 480-81 (B.A.P. 6th Cir. 2008) (Accordingly, we conclude, as a matter of law, that claims for withdrawal liability lack the requisite causal relationship to the work performed by the Debtors employees for the claim to be treated as an administrative expense.). See, e.g., McMillan v. LTV Steel, Inc., 555 F.3d 218, 226 (6th Cir. 2009) (a claim for retirement benefits that vested before the debtor filed for chapter 11 relief is a prepetition claim); In re CF & I Fabricators of Utah, Inc., 150 F.3d 1293, 1299 (10th Cir. 1998) (denying administrative priority status to a claim for pension benefits earned by prepetition labor of the pension plans participants); In re Pub. Ledger, Inc., 161 F.2d 762, 768-69 (3d Cir. 1947) (vacation pay earned but not paid prepetition does not constitute an administrative expense because the services to earn the pay were rendered prepetition).
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benefits that his employees have earned by their past service and that he would normally finance through continuing contributions to his employees pension plan; (ii) the employees service [constitutes] the consideration for the withdrawal liability; and (iii) the portion of an employers withdrawal liability that represents an accelerated lump-sum contribution toward the benefits its employees had accrued over the course of their prepetition employment cannot be an administrative claim. Bethlehem Steel, 479 F.3d at 172-73 (Sotomayor, J.) (internal footnote and citations to McFarlins omitted). 18. Assuming McFarlins does not completely prohibit treating some portion of
withdrawal liability as an administrative claim, controlling Second Circuit law at a minimum requires an administrative claim be limited to benefits earned post-petition by employees in consideration for their post-petition labor. (See id.) This reading of McFarlins would lead to the same outcome here as the Third Circuits decision in In re Marcal Paper Mills, Inc., 650 F.3d 311 (3d. Cir. 2011). Marcal explicitly allows for the possibility that some portion of withdrawal liability can be given administrative priority, but found that the administrative claim amount is limited to the extent to which new vested benefits that arose from the post-petition work of covered employees. . . have become underfunded. Id. at 319 (emphasis added).15 19. To be clear, the Reorganized Debtors believe that only the first method identified
below is consistent with the relevant case law. Two alternative methods are offered for reference and comparison, primarily because they illustrate the unreasonableness of FELRAs approach. These methods (as well as FELRAs proposed method) are each described below.
15
FELRA claims that any argument that an administrative claim for withdrawal liability must be limited to the value of benefits earned post-petition is inconsistent with Marcal. (FELRA Reply at 4) There is no basis for this statement; not only is the Reorganized Debtors argument consistent with Marcal, but it appears to be precisely what Marcal instructs. See 650 F.3d at 319.
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i. Method Advocated by the Reorganized Debtors 20. The Reorganized Debtors believe the method used by a bankruptcy court in In re
Sunarhauserman, Inc., 184 B.R. 279 (Bankr. N.D. Ohio 1995), best captures the underlying requirements for allowance of an administrative claim. Under this method, the pension benefits accrued by the Debtors FELRA-covered employees post-petition are compared to the contributions made by Debtors to FELRA during the same period. To the extent that the value of the post-petition accrued benefits exceeds the Debtors post-petition contributions to FELRA, a deficit would exist, which would be the amount of the administrative claim. 21. This method is unique from other methods described below, and uniquely
consistent with the typical standards for allowance of an administrative claim, because no liabilities arising from sources other than the post-petition labor of the Debtors employees such as benefits earned prepetition, benefits earned and accrued for employees of other FELRA employers, or investment losseswould be given administrative priority. Remarkably,
FELRAs expert objects to the method for this very reason, noting that this method look[s] at just the benefit, trying to isolate the benefits accrued whereas what I was asked to do . . . is calculate the total withdrawal liability . . . and try and apportion it.16 22. FELRA agrees that the Administrative Claim is less than $0 when calculated
under the method advocated by the Reorganized Debtors.17 In fact, the Debtors contributions during the post-petition period was more than four times the total benefits accrued by the
16
Woodrich Deposition Tr. at 96:3-15, attached hereto as Exhibit C. See Food Employers Labor Relations Association and United Food and Commercial Workers Pension Funds Objections and Responses to Reorganized Debtors Second Set of Request for Admission and Interrogatories (FELRAs Second Responses), dated Feb. 13, 2013, attached hereto as Exhibit D, at 4 (Response to Request for Admission #1) and 2 (Response to Interrogatory #1); Woodrich Deposition Tr. at 64:23 - 65:15; 101:7-12.
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Debtors FELRA-covered employees during that period.18 As FELRAs expert acknowledged, the increase in FELRAs unfunded vested benefits during the post-petition periodthe amount that forms the basis of FELRAs Administrative Claimwas not caused by the Debtors employees accruing more in benefits than the Debtors contributed.19 23. The calculations performed by the Reorganized Debtors retained expert, as well
as the statements made by FELRA and its own expert, demonstrate that the Administrative Claim as filed has no connection to the post-petition labor of the Debtors employees. Accordingly, the Reorganized Debtors believe FELRAs Administrative Claim should be $0 and the Debtors withdrawal liability should remain a Class J Pension Fund Withdrawal claim. ii. Alternative Method 1 (the New Employer Method) 24. Another possible method to determine the administrative portion of FELRAs
withdrawal liability claim would be to determine what the Reorganized Debtors withdrawal liability would have been had it been a new employer entering FELRA on the Petition Date and withdrawing on the Withdrawal Date. The Reorganized Debtors expert considered this method as a theoretically possible alternative because (i) under ERISA withdrawal liability is generally allocated based on an employers contributions to the plan (not the days of participation in the plan, which is what FELRA uses); and (ii) this is the method by which FELRA would calculate withdrawal liability for a new employer. 25. This alternative method, which would treat the Debtors as a new employer as of
the Petition Date, yields an Administrative Claim of $713,024. FELRA does not dispute the
18
The Reorganized Debtors expert has estimated the post-petition contributions to be approximately $2,097,969, and has estimated the present value of vested benefits earned by the Debtors employees during the post-petition period to be approximately $494,604. Woodrich Deposition Tr. at 65:16-24.
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estimates in the French Declaration underlying the calculation of the Administrative Claim under this potential method, and FELRAs expert agrees that the estimates are reasonable.20 iii. Alternative Method 2 (Petition Date vs. Withdrawal Date) 26. A final possible method for calculating the Administrative Claim is to compare
the Debtors withdrawal liability under FELRA as of the Petition Date (as if the Debtors had withdrawn from the Plan on the Petition Date), with the Debtors withdrawal liability on the actual Withdrawal Date. In other words, under this method, the Administrative Claim would represent the actual increase in Debtors withdrawal liability during the post-petition period.21 27. The Reorganized Debtors expert estimates that the Debtors withdrawal liability
as of December 12, 2010 would have been $76,894,839, compared to the Debtors withdrawal liability as of February 1, 2012, which FELRA has calculated as $77,420,079. Accordingly, under this alternative method, the Administrative Claim would equal approximately $525,240. FELRA does not dispute the estimates in the French Declaration underlying the calculation of the Administrative Claim under this potential method, and FELRAs expert agrees that the estimates are reasonable.22
20
FELRAs Second Responses at 6-7 (Interrogatories #3, 4); Woodrich Deposition Tr. at 103:11-18. As this Court noted in discussing FERLAs claim at the confirmation hearing, withdrawal liability generally is no different than any other contingent liability that becomes due upon the happening of a future event and was within the contemplation of the parties when their relationship began. See 2/27/2012 Tr. at 120:7-22 (discussing In re Chateauguay); In re Chateaugay Corp., 944 F.2d 997, 1004 (2d Cir. 1991). Thus, Alternative Method 1 is deficient in that it will incorporate at least some withdrawal liability attributable to funding benefits earned pre-petition, but at a minimum, it will exclude from the administrative claim all withdrawal liability, as calculated under ERISA, that would have existed as of the Petition Date. FELRAs Second Responses at 7-8 (Interrogatories #5, 6); Woodrich Deposition Tr. at 107:19-21.
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B.
FELRAs Days Elapsed Method for Calculating the Administrative Claim Violates the Bankruptcy Codes Priority Rules FELRAs methodology for calculating the Administrative Claim does not reflect
28.
benefits actually earned by the Debtors employees post-petition. Instead, FELRA uses an ERISA-based formula employed by plans to allocate changes in unfunded vested benefits yearover-year, based on (among other things) new benefits accrued fund-wide, investment performance, and new assumptions utilized. Under FELRAs method, for example, obligations for benefits earned by non-A&P employees in 2005 or 2006 that became underfunded in 2011 (because of, for example, FELRAs investment losses or changes in assumptions used to value rates of return or liabilities) are part of the Administrative Claim.23 29. That result is unacceptable. The law is clear that bankruptcy lawnot ERISA
governs whether and how much of a claim qualifies for administrative priority under the code. In re Caldor, Inc.-NY, 240 B.R. 180, 192-93 (Bankr. S.D.N.Y. 1999) aff'd sub nom. Pearl-Phil GMT (Far E.) Ltd. v. Caldor Corp., 266 B.R. 575 (S.D.N.Y. 2001) (citations omitted). FELRAs methodology defies the Bankruptcy Code by attempting to give prepetition obligations administrative priority, and it is inconsistent with the very cases on which FELRA relies. 30. Tellingly, outside of litigation, FELRAs actuarial firm (Cheiron) prepared a
client advisory on potential ways to calculate the administrative portion of withdrawal liability for employers that withdraw from a multiemployer fund in the middle of their chapter 11 cases.24 The methodology FELRA proffers here is not one of the methods in Cheirons publication. Instead, the methods described in the Cheiron Observation are near-identical to the method advocated by the Reorganized Debtors here (determining the extent to which post-petition vested
23
See Woodrich Declaration at 4-7 (summarizing withdrawal liability calculation year-over-year). See Cheiron Client Advisory, Vol. 8, No. 2, Summer 2011, attached hereto as Exhibit E, at 3-4.
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benefits exceed a debtors post-petition contributions), and the Alternative Method 2 described above (subtracting withdrawal liability as of the Petition Date from withdrawal liability as of the actual Withdrawal Date).25 31. FELRA essentially concedes as much. Indeed, the initial declaration submitted
by FELRAs expert claimed that he calculated the withdrawal liability attributable to postpetition work performed by A&Ps covered employees from December 12, 2010 through December 31, 2011.26 Because that is false, FELRAs expert amended his declaration, now asserting that his calculation of FELRAs administrative claim is attributable to A&Ps continued participation in the Fund from December 12, 2010 through December 31, 2011.27 32. This distinction is important. FELRAs expert has acknowledged that the
withdrawal liability incorporated into FELRAs Administrative Claim results from many factors other than the Debtors conduct post-petition, including: FELRAs investment losses; the
amount of benefit payments actually paid out to retirees; assumptions about participant behavior (retirement, termination, etc.); the discount rate selected to determine the present value of the total unfunded vested benefits; and underfunding of liabilities by other employers participating in the Fund.28 The $7.2 million Administrative Claim reflects liabilities that, as FELRAs expert concedes, accrued to the Fund long before the Petition Date.29
25
Id. at 4; Woodrich Deposition Tr. at 127:14-24 (confirming that option (a) in the Cheiron Observation is the same as Alternative Method 2); Woodrich Deposition Tr. at 129:3-9 (confirming that option (b) in the Cheiron Observation is similar to the method advocated by the Reorganized Debtors). See Declaration of Kevin Woodrich, FSA, EA, MAAA, filed July 24, 2012 [Docket No. 3890-1], at 9. Woodrich Declaration, at 9. See Woodrich Deposition Tr. at 37:16-23; 40:15-42:18; 47:15-24; 54:5 - 55:6; 91:11-24. Woodrich Deposition Tr. at 107:22 - 108:7.
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33.
While FELRA cites to both McFarlins and Marcal to argue that an
Administrative Claim for some portion of withdrawal liability may be permissible, FELRA disregards both courts instructions that the administrative claim cannot include amounts to satisfy benefits earned pre-petition. FELRA acknowledges McFarlins conclusion that, since the consideration supporting the withdrawal liability claim was entirely pre-petition work, the pension plan was not entitled to administrative claim priority.30 But FELRA then twists the holding and argues, [t]hus. . . . to the extent a withdrawal liability calculation is based on postpetition periods, the consideration for that portion of the withdrawal liability is supplied postpetition, and the post-petition portion is an administrative expense. Id. (emphasis added). FELRAs stretched extrapolation ignores the key sentence on the very same page of the McFarlins decision: The consideration supporting its withdrawal liability was, therefore, the work of employees in the alteration department during those earlier years. 789 F.2d at 103 (emphasis added). FELRA seeks to trade post-petition work for post-petition period, and craft a calculation using days of participation in the Fund rather than actual services rendered or benefits accrued by employees after the Petition Date.31
30
FELRA Reply at 3. FELRA also misplaces reliance on In re Great Ne. Lumber & Millwork Corp., 64 B.R. 426, 428 (Bankr. E.D. Pa. 1986). The bankruptcy court in that case made clear that an administrative claim must be calculated based on the consideration supplied and wages earned post-petition: [A] claim is given administrative status. . . . only to the extent that the consideration supporting the claimant's right to payment was both supplied to and beneficial to the debtor-in-possession. . . . [Withdrawal] liability usually accumulates over a period of years prior to the departure of the withdrawing employer. . . . Thus, the consideration supporting the withdrawal liability is, therefore, the same as that supporting the pensions themselves, the past labor of the employees covered by the plan. . . . As such, the liability is not accorded administrative priority. . . . [W]e must apply the general rule that the withdrawal liability is not an administrative claim under 503(b)(1)(A) unless it is attributable to wages earned after the filing of the petition. (Id.) (internal citations omitted) (denying administrative claim for withdrawal liability where debtor withdrew from plan post-petition).
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34.
FELRAs expert formulated his opinion of how to calculate the Administrative
Claim based on one case, In re Cott Corp., 47 B.R. 487, 489 (Bankr. D. Conn. 1984).32 Critically, Cott was decided by the U.S. Bankruptcy Court for the District of Connecticut before the Second Circuit decided McFarlins, and thus does not reflect the insight provided by that now-controlling precedent. The courts holding in Cott is also premised on a finding that a debtors withdrawal liability accrues when the vested pension benefits of a plan become underfunded. 47 B.R. at 493. This is at odds with the now well-accepted principle that withdrawal liability is not entitled to priority simply because the right to payment arises after the debtor in possession has begun managing the estate. McFarlin's, 789 F.2d at 101.
Moreover, it not completely clear from Cott exactly how the court expected pre- and postpetition portions of withdrawal liability to calculated, as the opinion neither cites a case to demonstrate how an administrative claim should be calculated, nor includes a calculation. Regardless, given the lack of precedent at the time Cott was decided in 1984, and given that precedent would lead to a different analysis if Cott were decided today, this Court should not give the case any weight. Reservation of Rights 35. The Reorganized Debtors reserve their rights to further object to the
Administrative Claim and to object to any proofs of claim asserted by FELRA on any ground. Conclusion WHEREFORE, for all of the foregoing reasons and the reasons set forth in the Reorganized Debtors Objection, the Reorganized Debtors respectfully request that the Court deny the administrative expense claim filed by FELRA.
32
See Woodrich Deposition Tr. at 20:24 - 22:14; 25:10-22.
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New York, New York Dated: June 13, 2013
/s/ Michael B. Slade James H.M. Sprayregen, P.C. Paul M. Basta Ray C. Schrock KIRKLAND & ELLIS LLP 601 Lexington Avenue New York, New York 10022 Telephone: (212) 446-4800 Facsimile: (212) 446-4900 - and Michael B. Slade Kristina K. Alexander KIRKLAND & ELLIS LLP 300 North LaSalle Chicago, Illinois 60654 Telephone: (312) 862-2000 Facsimile: (312) 862-2200 Counsel to the Reorganized Debtors
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EXHIBIT A
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motion to dismiss FELRAs appeal. Doc. 6. For the reasons set forth below, the appeal is DISMISSED as equitably moot. I. Background As relevant to the instant motion, the well-known supermarket chain A&P and its affiliates commenced the underlying bankruptcy proceedings on December 12, 2010, by filing voluntary petitions for relief pursuant to chapter 11 of the Bankruptcy Code. Bankr. Doc. 1. Negotiations between A&P and FELRA and the Side Letter Agreement At the time A&P filed for bankruptcy, its subsidiary, Super Fresh Markets, Inc. (Super Fresh), operated approximately 25 stores in the Mid-Atlantic region. Bankr. Doc. 3332, Notice of Debtors Motion for Authority to Enter into a Side Letter Agreement 8. A&P and United Food and Commercial Workers Local 27 (Local 27) were parties to a Collective Bargaining Agreement (CBA) which covered approximately 1,300 employees in the Super Fresh stores. Id. Pursuant to the terms of the CBA, Super Fresh was obligated to make contributions to a pension fund (the Pension Fund) for covered employees. Bankr. Doc. 3240, Declaration of George Murphy, Jr. 5. As part of its reorganization, A&P sold or closed all but three of the Super Fresh stores. By order dated June 1, 2011, the bankruptcy court authorized the sale of the Super Fresh stores in accordance with certain Store Rationalization Procedures it had previously approved. Bankr. Doc. 1734. The sale of the assets of the Super Fresh stores generated more than $40 million in cash proceeds (excluding additional proceeds for inventory) and freed A&P from the costs of operating underperforming stores that were not part of their going-forward business plan. Bankr. Doc. 3041, Revised Disclosure Statement p. 40. As a result of the sales, the number of employees covered by the CBA was reduced to approximately 100, or by approximately 91%. Given the size of the reduction of covered
employees, A&P thus concluded that a partial withdrawal from the pension fund covered by the CBA was triggered and subjected it to ERISA liability. 2 The partial withdrawal arguably gave FERLA a claim subject to the Bankruptcy Codes discharge provisions. 11. U.S.C. 101(5). FERLA thereafter filed contingent proofs of claim for withdrawal liability in the
estimated amount of $76,846,817, which reflected the amounts that might be owed in the event of a future withdrawal and clearly stated that its claims were contingent. Bankr. Doc. 3240, FERLAs Objection to the Debtors Joint Plan of Reorganization 16-17. In order to eliminate any doubt as to how FERLAs claim would be treated in the Plan, on January 9, 2012, A&P proposed to enter into a side letter agreement (the Side Letter Agreement) with Local 27 explicitly eliminating A&Ps obligation to contribute to the Pension Fund for the remaining employees permanently and completely. Id. Ex. 2, Dec. of George Murphy, Jr. 11. FELRA initially refused to enter into the agreement and, in its filing entered on January 24, 2012, specifically contested that A&P had even partially withdrawn from the pension fund. Id. Ex. 1, Dec. of William R. Jensen 4. In their objections to the proposed Joint Plan of Reorganization, FELRA argued: Super Fresh does not satisfy either of these standards for [complete] withdrawal, but the Debtors have nonetheless elected to classify the Pension Funds claims as Class J Pension Withdrawal Claims treating the Pension Funds contingent claims as liquidated, prepetition unsecured claims, and improperly including the Pension Funds claims with other pension plans from which the Debtors withdrew prepetition. Id. 3 (emphasis in original). On January 31, A&P sent the president of Local 27 a letter which provided:
Under the Employee Retirement Income Security Act (ERISA), a partial withdrawal from multiemployer plans covering retail food employees, like the Super Fresh employees here, occurs when the employer reduces its contribution base units by 35% during a three-year testing period, which consists of the plan year and two immediately preceding plan years. 29 U.S.C. 1385(c). Complete withdrawal from a multiemployer plan occurs when an employer permanently ceases to have an obligation to contribute to the plan or permanently ceases the operations for which it had an obligation to contribute to the plan. 29 U.S.C. 1383.
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As we discussed over the past few months, [A&P] will immediately effectuate a complete withdrawal from the FELRA Pension Fund prior to the confirmation of its plan of reorganization. This can be accomplished either by (i) Local 27s agreement that [A&P]s obligation to contribute to the FELRA fund for all employees ceases immediately and permanently, with all affected employees being transferred to another retirement plan, such as the UFCW International Pension Plan, for future benefits or (ii) [A&P] closing the affected stores employing Local 27 members who participate in FELRA, effective as of February 1, 2012. Bankr. Doc. 3346, FELRAs Objection to Debtors Motion for Authority to Enter into a Side Letter Agreement, Ex. A. Faced with the possibility of the employees at the remaining stores losing their jobs, Doc. 18 p. 6, Local 27 relented and entered into the Side Letter Agreement. The Side Letter Agreement, dated January 31, 2012 between FELRA and A&P provides in relevant part: As a result of the sale or closure of stores by [A&P] during its bankruptcy proceedings (Store Sales), [A&P] has significantly reduced its contributions to the FELRA Fund under the CBA. In consideration of mutual promises and covenants made herein and for other good and valuable consideration, the parties agree as follows: 1. The Parties acknowledge and agree that as of January 31, 2012: (a) [A&Ps] obligations under the CBA to contribute to the FELRA Fund with respect to all employees will cease immediately and permanently and A&P will withdraw from the FELRA Fund in a complete withdrawal, and (b) the CBA shall be deemed modified, as necessary to reflect such cessation and withdrawal, effective immediately and permanently. Bankr. Doc. 3332. The effect of the Side Letter Agreement was, of course, that FELRAs claim would be discharged upon the confirmation of the Plan as a complete withdrawal. 3 That was precisely the
Section 1141(d)(1) of the Bankruptcy Code provides in relevant part, Except as otherwise provided in this subsection . . . the confirmation of a plan . . . discharges the debtor from any debt that arose before the date of such confirmation . . . whether or not a proof of claim based on such debt is filed[.] 11 U.S.C. 1141(d)(1).
certainty that A&P had sought. See Bankr. Doc. 3354, Debtors Memorandum of Law in Support of Confirmation of the Joint Plan 139 (During Debtors negotiations with Local 27 . . . the Debtors made clear that a complete and permanent cessation of their obligations to contribute to FELRA was absolutely essential to the Debtors emergence from chapter 11 protection.) (emphasis added). After executing the Side Letter Agreement, however, FELRA had a change of heart and challenged the transaction as one whose principal purpose was to evade or avoid withdrawal liability within the meaning of Section 4212(c) 4 of [ERISA]. Bankr. Doc. 3346 4. Accordingly, FELRA objected to A&Ps request for authorization to enter into the Side Letter Agreement and requested that the matter be resolved through arbitration. Id. FELRA also objected on the alternate ground that its claims were not properly classified as Pension Withdrawal Claims. 5 Id. 22. At the confirmation hearing on February 6, 2012, FELRA sought to have itself removed from the Plans Class J, Pension Withdrawal Claims. Doc. 18. p. 7. Over FELRAs objection, Judge Drain authorized the Side Letter Agreement in an order dated February 8, 2011. Bankr. Doc. 3391. The confirmation hearing was continued on February 27, 2012. At that time, FELRA orally moved for a stay pending its appeal of the Bankruptcy Courts decision overruling its objections to the Plan. Judge Drain denied the request for a stay. The judge noted:
Section 4212 of ERISA, codified at 29 U.S.C. 1392, defines an employers obligation to contribute under a collective bargaining agreement, provides that payments of withdrawal liability are not considered contributions, and requires that this part be applied to any transaction whose principal purpose is to evade or avoid liability under this part. 29 U.S.C. 1392 (a)-(c).
The Plan defines Class J, Pension Withdrawal Claims any and all claims against the Debtors arising from the Debtors complete or partial withdrawal from any Multiemployer Pension Plans related to actions or events occurring prior to the Effective Date, including . . . Food Employers Labor Relations Association and United Food and Commercial Workers Pension Fund. Bankr. Doc. 3477-1 at 11.
[I]t seems to me that while I obviously have to weigh the issue of your objection becoming moot, it's not clear to me necessarily that it would become moot, and, more importantly, the harm to the debtors of delaying confirmation pending a determination on a seventy-three-million-dollar claim far outweighs the risk that FELRA faces. Clearly to me, this was a claim that falls within the case law of Chateaugay and the other cases that is a pre-petition claim, except for, possibly, for the tiny sliver earned post-petition. And leaving that issue open is going to cause irreparable harm to the debtors because they won't be able to close. So on the merits, obviously I would not deny a request for a stay because I ruled against you -that's not the standard -- I do believe that as far as the nature of the claim is concerned, pre or post-petition or dischargeable or not, that is a clear loser on your part, and I would stand on that. Bankr. Doc. 3505, Transcript of February 27, 2012 confirmation hearing, 78:7-22 (emphasis added). Notwithstanding his preliminary ruling, Judge Drain invited FELRA to make a further written submission on their request for a stay: You could persuade me in writing otherwise. Or, alternatively, my preliminary ruling could be my final ruling and you can go right away to the district court if you want and ask for a stay. Id. 79:14-17 (emphasis added). FELRA opted for the latter option, and requested that the Judge issue a final oral ruling. The judge found: All right. Well, what I just gave you will be my final ruling on this issue. I find that, given the balance of the harms here and my analysis of the -- as well as my analysis of the merits, but primarily based on the balance of the harms, that a stay is not warranted, particularly as here, where there's no offer of any bond to protect the debtors in the event that the proposed transaction or the financing -- the exit financing -- go by the boards as a result of the stay. Id. 81:15-22. FELRA did not seek an appeal of Judge Drains denial of their request for a stay in this Court. Judge Drain signed the Confirmation Order that very day, Feburary 27, 2012, and it was entered on February 28, 2012. The Plan became effective on March 13, 2012 (the Effective
Date). The Notice of Appeal was filed approximately one month later, on April 10, 2012. Doc. 1. The Confirmation of the Plan of Reorganization The negotiations concerning the CBA with FELRA were, of course, but one piece of a much larger, complex plan of reorganization. Frederic F. Brace, a consultant for A&P and, prior to its emergence from chapter 11 protection, its Chief Financial Officer, Chief Administrative Officer and Chief Restructuring Officer, submitted a declaration in support of the instant motion describing, among other things, the cascade of transactions and other events that occurred immediately after the Effective Date the Plan on March 13, 2012. Doc. 7 (Brace Dec.). On the Effective Date, the Reorganized Debtors emerged from chapter 11 protection and began conducting business as a reorganized company. Specifically, over the course of the following month Mr. Brace noted that A&P engaged in the following transactions: discharged nearly a billion dollars in debt held by over 7,000 creditors and permanently enjoined those creditors from asserting those claims against A&P; cancelled approximately 53.8 million shares of publicly traded common stock in The Great Atlantic & Pacific Tea Company, Inc. held by more than 16,000 shareholders; issued approximately 800,000 shares of new common stock; issued over $455 million in second and third lien notes; issued warrants to Yucaipa Companies LLC (an investor) to allow it to purchase new common stock and new third lien convertible notes; received over $490 million from the convertible noteholders and Yucaipa for their new money investment and an additional $5 million from one of A&Ps suppliers; closed on a $645 million exit financing facility;
disbursed over $310 million in cash to second lien noteholders through the Depository Trust Company (DTC), making it difficult if not impossible to now claw back the distributions; disbursed more than $55 million in payments on account of cure payments, 503(b)(9) claims, and other administrative claims to approximately 250 separate vendors, landlords, service providers, contract counterparties, and others; filed amended certificates of incorporation for all A&P corporate entities and amended the operating agreements for each LLC subsidiary; formed new holding companies for real estate and pharmaceutical assets; filed a Form 15 with the Securities Exchange Commission to deregister its old common stock; and named a new slate of seven directors as required by the Plan, who have begun to make critical decisions for the Reorganized Debtors. Id. 5. A&P argues that, as a practical matter, granting FELRA the relief it requests would require unwinding the entire Plan which would likely be impossible given the countless other transactions have been entered into in reliance on the Plan. Specifically, to unwind the Plan, A&P would have to return the $490 million in new investment received from its investors and reclaim the 800,000 shares of new stock and over $455 million in second and third lien notes that have been issued. Id. 6. A&P has now paid hundreds of millions of dollars in distributions. In particular, over $310 million was distributed to over 200 holders of the Reorganized Debtors prepetition second lien notes through DTC, which then made distributions to the participants who certified an interest in the securities with their DTC counterpart. Id. 7. The participants then further distributed or credited the underlying book entry account of the second lien noteholders. Id. A&P does not have a record of the second lien noteholders or their holdingsmaking reversal of the distributions to such holders a daunting, if not impossible, task. Id. Unwinding the Plan
would further require the reinstatement of the old A&P common stock outstanding prior to the Effective Date, which was delisted during the course of the chapter 11 cases and cancelled upon the Plan becoming effective. Id. In light of the foregoing, Brace concluded that unwinding the Plan would be impractical, [] likely impossible, and would certainly be inequitable. Id. Moreover, Brace opines that if the Confirmation Order were overturned, A&P would be forced to liquidate, forcing thousands out of work and leaving FELRA in, at best, the same position it is in now. Id. 8. For its part, FELRA does not dispute that the significant and consequential economic activity detailed in the Brace declaration has taken placeor indeed that the Plan is
substantially consummatedand concedes that the drastic undertaking of unwinding the entire Plan and forcing liquidation . . . would not achieve the Pension Funds objectives at all. Doc. 18 p. 11. Rather, FELRA argues that the relief it requests does not require unwinding the entire Plan at all, and that it only seeks the removal of itself as a creditor under Plan on the basis that the Debtors have not withdrawn from the Pension Fund. Id. 6
II.
Discussion A. Standard of Review This Court has jurisdiction to hear appeals from decisions of a bankruptcy court pursuant
to 28 U.S.C. 158(a), which provides in relevant part that [t]he district courts of the United States shall have jurisdiction to hear appeals . . . from final judgments, orders, and decrees; . . . [and,] with leave of court, from other interlocutory orders and decrees . . . of bankruptcy judges. 28 U.S.C. 158(a). A district court reviews a bankruptcy courts findings of fact for clear error
The Court notes that FELRA has not met Braces Declaration concerning the likely effects of granting the relief it seeks with a declaration or other factual submission of its own, aside from the arguments in its memorandum in opposition.
and its conclusions of law de novo. Overbaugh v. Household Bank, N.A. (In re Overbaugh), 559 F.3d 125, 129 (2d Cir. 2009); see Fed. R. Bankr. P. 8013 (a district court may affirm, modify, or reverse a bankruptcy judges judgment, order, or decree, and [f]indings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous). B. FELRAs Appeal is Equitably Moot Equitable mootness is a prudential doctrine that is invoked to avoid disturbing a reorganization plan once implemented. In re Metromedia Fiber Network, Inc., 416 F.3d 136, 144 (2d. Cir. 2005); see also MAC Panel Co. v. Va. Panel Corp., 283 F.3d 622, 625 (4th Cir.2002) ([E]quitable mootness is a pragmatic principle, grounded in the notion that, with the passage of time after a judgment in equity and implementation of that judgment, effective relief on appeal becomes impractical, imprudent, and therefore inequitable. (emphasis omitted)). An appeal should also be dismissed as moot when, even though effective relief could conceivably be fashioned, implementation of that relief would be inequitable. In Re Chateaugay Corp., 988 F.2d 322, 325 (2d Cir. 1993) (Chateaugay I) (citing In re AOV Industries, Inc., 792 F.2d 1140, 1147 (D.C.Cir.1986)). Such a dismissal is appropriate when, for example, the appellant has made no effort to obtain a stay and has permitted such a comprehensive change of circumstances to occur as to render it inequitable for the appellate court to reach the merits of the appeal. Id. (internal quotation omitted) (citing In re Crystal Oil Co., 854 F.2d 79, 82 (5th Cir.1988). As an initial matter, the Court finds that the Plan is substantially consummated. Under the Bankruptcy Code, a plan is substantially consummated upon (1) transfer of substantially all of the property proposed by the plan to be transferred; (2) the reorganized debtor's assumption of the debtor's business; and (3) commencement of distribution under the plan. 11 U.S.C. 1101(2). Here, A&P has pointed to the number, size, and complexity of the transactions it has
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completed since the Plan's March 13, 2012 Effective Date, including: the issuance of 800,000 shares of new stock; the discharge of nearly a billion dollars in debt to over 7,000 creditors; the closing on a $645 million exit financing facility; and the disbursement of $310 million in cash to second lien holders. Accordingly, A&Ps Plan has been substantially consummated as that term is defined by the Code, and FELRA has not argued otherwise on appeal. In re Metromedia Fiber Network, Inc., 416 F.3d at 144. When a reorganization has been substantially consummated, there is a strong presumption that an appeal of an unstayed order is moot. Freeman v. Journal Register Co., No. 09-CIV-7296 (JGK), 2010 WL 768942, at *4 (quoting Allstate Ins. Co. v. Hughes, 174 B.R. 884, 889 (S.D.N.Y.1994)); see also In re Metromedia Fiber Network, Inc., 416 F.3d at 144. This presumption may only be overcome when five circumstances are present: (a) the court can still order some effective relief; (b) such relief will not affect the re-emergence of the debtor as a revitalized corporate entity; (c) such relief will not unravel intricate transactions so as to knock the props out from under the authorization for every transaction that has taken place and create an unmanageable, uncontrollable situation for the Bankruptcy Court; (d) the parties who would be adversely affected by the modification have notice of the appeal and an opportunity to participate in the proceedings; and (e) the appellant pursued with diligence all available remedies to obtain a stay of execution of the objectionable order ... if the failure to do so creates a situation rendering it inequitable to reverse the orders appealed from. FritoLay, Inc. v. LTV Steel Co. (In re Chateaugay, Corp.), 10 F.3d 944, 95253 (2d Cir.1993) ( Chateaugay II) (internal citations, quotations, and alterations omitted). The parties agree that a resolution of the motion requires an analysis of the Chateaugay II factors. Even a cursory review of those factors, however, make clear that FELRA is not able overcome the presumption that a substantially consummate plan should not be disturbed.
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i. The Court is Unable to Order Some Effective Relief While substantial consummation of a reorganization plan is a momentous event, the Second Circuit has cautioned that it does not necessarily make it impossible or inequitable for an appellate court to grant effective relief. Chateaugay II,10 F.3d at 952. Thus, failure to provide effective relief has been found where the transactions already consummated cannot be undone, assets sales have been completed, and funds have been disbursed to persons who are not parties to the appeal. See e.g. Bartel v. Bar Harbor Airways, Inc., 196 B.R. 268, 272 (S.D.N.Y. 1996) (finding inability to provide effective relief where the asset sales are completed and the proceeds already distributed); In re Blumer, 66 B.R. 109, 113 (B.A.P. 9th Cir. 1986), affd, 826 F.2d 1069 (finding it impossible to grant effective relief where funds have been disbursed to non-litigants). Here, FELRAs conclusory assertion that the relief it requests would not require the unwinding of the entire Plan is unpersuasive, and insufficient to rebut the finding of the Bankruptcy Court that [e]ach term and provision of the Plan . . . is integral to the Plan. Confirmation Order 182. See also Confirmation Order 214 (For the avoidance of doubt, the Debtors are assuming the Modified Collective Bargaining Agreement between the Debtors and United Food and Commercial Workers International Union Local 27 . . . as further modified by the Side Letter of Agreement, dated January 31, 2012, between the Debtors and Local 27.) (emphasis added). A&P has submitted sufficient evidence for the Court to conclude that excising FELRAs $76 million dollar claim, and reclassifying it, would have a deleterious effect on the numerous transactions that necessarily had to be consummated for the Plan to become effective. FELRA has offered no facts in response. See In re Metromedia Fiber Network, Inc., 416 F.3d at 145 (denying appeal as equitably moot after finding that the inter-relatedness of the
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transactions would be affected by the relief sought: It appears that all these things have been done, and that none can be undone without violence to the overall arrangements.) ii. The Relief Requested Will Affect the Re-emergence of A&P as a Revitalized Corporate Entity A&P asserts that reclassifying FELRAs claim would constitute a default under the financing and investment agreements that underlie the Plan. FELRAs response is that such an occurrence is unsupported speculation about the future. Doc. 18 p. 12. The Court notes that it is not speculation to conclude that A&Ps counterparties would move appropriately to assert their rights under the agreements in the event that a $76 million claim were found to not to be dischargeable in Bankruptcy. As the Judge Drain noted at the February 6, 2012 hearing: I cant imagine any investor agreeing to close on a deal where they wouldnt know whether a seventythree million dollar claim was going to be discharged or not. I mean, its just a joke. They would never do that. Transcript of February 6, 2012 Hearing, 111:2-6. The same irrefutable logic applies after substantial consummation of the Plan. If reclassification results in an event of default, it would be unreasonable assume that the investors would not exercise their foreclosure rights in the face of a liability that could imperil the entire Plan and their substantial investment. Such an event would clearly affect the ability of A&P to emerge as a revitalized entity. In any event, even if the Court cannot predict what will happen if this settlement is in any part altered, having sought no stay of the bankruptcy court's order (and no expedited appeal), appellants bear the burden of this uncertainty. In re Metromedia Fiber Network, Inc., 416 F.3d 145 (citing Chateaugay I, 988 F.2d at 326 (The party who appeals without seeking to avail himself of that protection does so at his own risk.)).
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iii. Such Relief Will Likely Unravel The Plan The Plan includes a severability provision that provides in relevant part that [t]he Confirmation Order shall constitute a judicial determination and shall provide that each term and provision of the Plan . . . is . . . nonseverable and mutually dependent. Doc. 1 Ex. 1, Art. XI.N. Clearly, the classification of FELRAs claim, as well as the Modified Collective Bargaining Agreement with Local 27, as further modified by the Side Letter Agreement, see Confirmation Order 214, are valid and integral to the Plan. Id. 182. Thus, pursuant to the terms of the Plan, if FELRA were to prevail on its appeal of the Confirmation Order, the entire Plan, having already been substantially consummated, would be doubt. See Bartel v. Bar Harbor Airways, Inc., 196 B.R. 268, 272 (S.D.N.Y. 1996) (finding that where the asset sales are completed and the proceeds already distributed, the relief requested would unravel intricate transactions and create an unmanageable, uncontrollable situation for the Bankruptcy Court.); see also In re Continental Airlines, 91 F.3d 553, 565 (Where, as here, investors and other third parties consummated a massive reorganization in reliance on an unstayed confirmation order that, explicitly and as a condition of feasibility, denied the claim for which appellate review is sought, the allowance of such appellate review would likely undermine public confidence in the finality of bankruptcy confirmation orders and make successful completion of large reorganizations like this more difficult.) iv. All Parties Who Would be Adversely Affected Have Not Received Notice of the Appeal FELRA has conceded that the only parties who have received notice of the appeal are those that were present at the February 27, 2012 hearing, or who received notice pursuant to Bankruptcy Rule 8001(a). Doc. 18 p. 15. FELRAs view as to the sufficiency of its effortif it can be described as suchis based on the premise that its requested relief only focuses on a
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narrow aspect of the Plan. Id. As discussed above, FELRAs position is rebutted by the plain terms of the Plan and by the significance of its claim. This Court cannot find as a matter of fact or law that reclassification of FELRAs $76 million dollar claim, and the attendant rejection of the Confirmation Order, would not affect the dozens of innocent third parties that have already consummated transactions in reliance on the Plan. Accordingly, FELRA, admittedly, has failed to provide proper notice to all those who would be adversely affected by the Plan. v. FELRA has not Pursued with Diligence All Available Remedies to Obtain a Stay of Execution of the Order FELRA asserts that the fact that it made an oral request of the Bankruptcy Court to issue a stay, which was promptly denied, satisfies its obligation under the fifth Chateaugay II factor. Doc. 18 p. 16. FELRA is mistaken. Courts in this Circuit do not merely require appellants in bankruptcy proceedings to request a stay in a perfunctory manner; they require diligence. In the instant case, while FELRA rightly notes that it did not request an oral ruling from Judge Drain so that it could request a stay from this Court, id., it is the case that Judge Drain reasonably assumed that to be the case: You could persuade me in writing otherwise. Or, alternatively, my preliminary ruling could be my final ruling and then you can go right away to the district court if you want and ask for a stay. Bankr. Doc. 3505, Transcript of February 27, 2012 confirmation hearing, 79:14-17. FELRA did not thereafter seek a stay of the Confirmation Order in this Court. Its failure to do so is fatal under Second Circuit authority. That is so because in the Second Circuit, courts expect appellants to proceed with dispatch at every step of the process. See Chateaugay II, 10 F.3d at 954 (finding appeal not equitably moot in part because appellant sought to stay the confirmation of the Plan in urgent applications before the bankruptcy court,
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Exhibit 1 A&P Post-Petition Period Contributions to FELRA Estimated Present Value of Vested Benefits Accrued in Post-Petition Period Debtors Post-Petition Contributions 2010 2011 2012 Total postpetition contributions $130,701 Full-Time Contribution Rate $872.54/month Number of months1 150 1,644 131 Multiplied by $47 Benefit Accrual Rate $7,050 $77,268 $6,157 Rough Present Value2 $35,250 $386,340 $30,785 $452,375
$1,815,940 $1104.59/month $151,328 $1156.63/month $2,097,969
Estimate of total accrued benefits, assuming all employees were full-time during post-petition period Part-Time Contribution Rate Multiplied by $32 Benefit Accrual Rate 405 4,834 353 $12,960 $154,688 $11,296
2010 2011 2012 Total postpetition contributions
$130,701 $1,815,940 $151,328 $2,097,969
$323.05/month $375.64/month $428.23/month
$38,880 $464,064 $33,888 $536,832
Estimate of total accrued benefits, assuming all employees were part-time during post-petition period
Estimate of total accrued benefits, assuming 50% full-time and 50% part-time employment during post-petition period = ($452,375 * .5) + ($536,832 * .5) =
$494,604
Assumed total number of months for which contributions were made on behalf of employees based on total contributions divided by the full-time and part-time contribution rates. Conservative PV factor of 5 assumed for full-time participants and 3 for part-time participants. This corresponds to an assumed average age of 53 for full-time and 46 for part-time, deferral age (unreduced) of 62, 8.0% per annum discount rate and 2012 unisex mortality. This calculation is intended only as a rough, ballpark present value.
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Exhibit 2
12/31/2009 A&P Withdrawal Liability Estimate Year After Pool Year 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Total A&P Allocation at 12/31/2008 24,161 36,686 50,595 64,830 79202 94,828 110,545 128,400 146,420 165,189 5,178,004 10,550,392 19,368,435 (2,312,007) 3,715,125 1,435,188 5,774,130 4,493,803 27,426,304 A&P Allocation at 12/31/2009 12,081 24,457 37,946 51,864 66,002 81,281 96,727 114,133 131,778 150,172 4,746,504 9,738,823 17,984,975 (2,157,873) 3,482,930 1,350,765 5,453,345 4,257,287 26,054,989 5,216,653 76,894,839
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Exhibit 3
Original Declaration of Darren French (December 21, 2012)
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UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ------------------------------x In Re: THE GREAT ATLANTIC & PACIFIC Case No. 10-24549(RDD) TEA COMPANY, INC., et al., Reorganized Debtors. ------------------------------x
DEPOSITION OF KEVIN JAMES WOODRICH New York, New York Wednesday, January 16, 2013
Reported by: Steven Neil Cohen Ref: 8825
TransPerfect Legal Solutions 212-400-8845 - depo@transperfect.com
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Page 20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Woodrich that you are going to offer in this case? A. Speaking with both counsel and my
colleagues as well as one case, Cott versus New England. Q. A. Sorry. What was the case?
Cott, C-O-T-T, versus New England
were relied upon. Q. Okay. And what documents did you
review in forming your opinion? A. I read the Cott versus New England
and prior to that in order to calculate the withdrawal liability referred to the fund's withdrawal liability policy in accordance with ERISA using that to first calculate the total amount. Q. Okay. So, other than the document
you have described did you look at any other documents in coming to your opinion? A. Q. No. So if I understand your testimony
correctly FELRA's counsel gave you one case, the Cott versus New England case? A. No. They gave me other cases but
the one used to formulate my opinion was
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Page 21 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Woodrich based on the aforementioned Cott versus New England. Q. Okay. Let me make sure my What documents, any
question is clear then.
documents, and that can be cases, other documents or articles provided by your attorney, any document did you look at in connection with forming your opinion? A. There were other cases provided to
me of which the names of those I don't recall. Q. A. Q. A. Q. A. Q. Sure. No. Any materials at Cheiron? No. Any published articles or -No. Any Google searches for documents Anything other than cases?
on the topic? A. Q. No. Okay. So it is fair to say that
you formed your opinion based on the cases provided to you by FELRA's counsel? A. Yes, as well as conversations with
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Page 22 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Woodrich both counsel and fellow colleagues. Q. Okay. Let's talk about those
conversations. What conversations did you have with fellow colleagues? A. One other colleague pointed in
discussing how to separate the pre-petition and the post-petition portion of the withdrawal liability in conversation pointed me in the direction of the Cott versus New England to consider as one option, if you will, for performing the job that we were asked to do. Q. A. Q. A. Q. Okay. Who is that colleague?
Peter Hardcastle. He is also at Cheiron? Yes. And it was him that provided you
with this Cott versus New England case? A. Q. A. Q. Not the actual document. Sure. But he suggested?
But he suggested. Prior to getting that suggestion
from Peter Hardcastle had FELRA's counsel
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Page 25 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Woodrich quality control process is to have people review the calculations and it was Peter's responsibility to review the calculations that were performed by myself. Q. Okay. And so did Mr. Hardcastle
and you prior to you doing the calculation, did Mr. Hardcastle and you discuss how you would do the calculation? A. He provided or referenced the Cott
versus New England and upon reading it I interpreted and applied it in performing the calculation which was later reviewed by Peter. Q. Okay. So you believe your
calculation and proposed methodology in your declaration is derived from this Cott versus New England case; is that correct? A. Q. source? A. Q. No. And just to confirm, did Yes. Did you derive it from any other
Mr. Hardcastle suggest any other methodologies you might want to consider in
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Page 37 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 correct? A. Q. Yes. So it is correct then that Woodrich
investment losses will decrease the value of FELRA's assets? A. Q. Yes. And if assuming vested benefits
remain unchanged, a -- you would agree with me that a decrease in FELRA's assets caused by investment losses would actually increase FELRA's unfunded vested benefits? A. Provided liability -- the present
value vested liabilities is at or about the same level, yes. Q. So just investment losses alone
can cause unfunded vested benefits to increase, correct? A. Q. Correct. And investment losses alone can
cause A&P's own withdrawal liability to increase, correct? A. Q. Correct. And investment losses have nothing
to do with services rendered by A&P
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Page 40 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Woodrich what is it earning right now in the market if you know? A. Q. I do not know. What do you from a valuation
perspective expect it to return? A. We have not been provided the --
December 31, 2012 asset values for obvious reasons but it could range, it could be in the 10 percent range in terms of asset performance -- investment performance for 2012 if it is on par with many of -- what many other investment managers have been reporting. Q. Okay. And other than poor
performance of FELRA's investments in the marketplace what else might cause FELRA's unfunded vested benefits to increase or decrease? A. The present value vested benefits
from one year to the next can change due to whether there were any plan changes, additional benefits, benefit accruals, less the benefit payments that were actually paid out in the prior year, participant behavior
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Page 41 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Woodrich in calculating liability as actuaries we make several assumptions when people retire, when people terminate and to the extent that as those unfold and as participant behavior if it deviates from those assumptions it can cause liabilities to change. Q. Okay. And you decide those
assumptions, correct, you figure out what assumptions to employ in the valuation process? A. We -- every four to five years an
actuary performs an experience study which entails looking at the actual performance of the fund and tweaking any assumptions as they seem fit if actual experience has deviated from those assumptions. Q. Okay. So for example to determine
the present value of the unfunded vested benefits you had to apply a discount rate, right? A. Q. Yes. And if you had chosen a higher
discount rate to figure out the unfunded vested benefits the present value of those
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Page 42 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Woodrich unfunded vested benefits would actually be less; is that correct? A. Using a higher discount rate the
liability would have been less and thus the unfunded or the difference between that liability and the market value would have been less. Q. Okay. And so using a higher
discount rate to determine the unfunded vested benefits under your methodology would have actually decreased A&P's withdrawal liability, correct? A. Q. Correct. And under your methodology
changing the discount rate would actually decrease FELRA's administrative claim, correct? A. Q. Yes. Let's look at Cheiron's withdrawal
liability calculation for A&P which we will mark as Exhibit 2. (Document Bates numbered FPF000141 was marked A&P Exhibit 2 for identification) MS. ALEXANDER: For the record
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Page 47 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Woodrich change in -- for 2011, in subsequent years for performing withdrawals in later years like 2013, there will be another -- there will be a specific pool for 2012 in that 127 million, that 2011 pool would be 5 percent less. Q. Okay. For purposes of our
discussion when I am referring to these numbers can I just call them the change in unfunded vested benefits? A. Q. Yes. What does the next column mean,
reallocation amounts? A. When an employer withdraws to the
extent that they cannot pay their withdrawal liability or there is a difference between the amount they are able to pay and the withdrawal liability amount assessed that gets reallocated or put back into the fund and gets established as an additional amount to consider in terms of allocating to the remaining employers in calculating withdrawal liability. Q. Okay. So I think we discussed
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Page 54 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Woodrich FELRA's unfunded vested benefits in 2011, correct? A. Q. Correct. That $127 million change in
unfunded vested benefits, I am correct that that reflects things like -- the things we discussed earlier like investment losses and your assumptions about -- your actuarial assumptions; is that correct? A. Yes. MS. ARADI: When you reach a
stopping point let's take a break. MS. ALEXANDER: BY MS. ALEXANDER: Q. And it would also -- that Sure.
$127 million change in unfunded vested benefits, that would also account for, for example, other employers' failure to pay their own contribution obligations, correct? A. The present value vested benefits
is for -- is calculated on behalf of all employers, not separated. Q. And so the change in that number
reflects investment losses and failure of
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Page 55 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Woodrich other employers to contribute to the fund as they were obligated to, correct? A. It includes all experience,
everything experienced by the plan as a whole. Q. Good. Okay. We can take a
MS. ALEXANDER: break now. MS. ARADI: (Recess) BY MS. ALEXANDER: Q.
Thanks.
Back on the record. So we were looking at Exhibit 2
which is the withdrawal liability analysis for A&P prepared by Cheiron. Based on column 2 of your withdrawal liability analysis it looks like every year between, for example, 2002 and 2009 A&P contributed less than 3 million to the fund, is that right? A. Q. Yes. Am I correct that all else being
equal if A&P had contributed a multiple of that, let's say $10 million every year to
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Page 64 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 it? Q. Sitting here today do you have any Woodrich specifically, it would entail needing to know those employees that may have only worked after the first of the year and are no longer employed by the end of the year. Those would not show up in the data that we have to be able to give an absolute accurate figure as to the amount of benefits earned for everybody -Q. A. Q. But you have --- who worked at A&P. But you have sufficient data to be
able to approximately estimate the amount of benefits earned by A&P's employees during 2010, correct? A. Q. Yes. Do you have sitting here today any
reason to believe that A&P's employees working in 2010 earned more in benefits than A&P contributed in 2010? A. Can you rephrase that or repeat
reason to believe that A&P's employees earned or accrued more in benefits than the
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Page 65 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Woodrich value contributed by A&P in 2010 to the fund? A. Q. No. Sitting here today do you believe
that A&P actually contributed more to the fund in 2010 than the value of the total benefits accrued by their employees? A. Q. Yes. Same question for 2011. Sitting
here today do you believe A&P contributed more to the fund in 2011 than the value of the benefits accrued by A&P's employees in 2011? A. Q. Yes. Okay. So you agree with me then
that FELRA's total unfunded vested benefits, the increases I should say in FELRA's total unfunded vested benefits in 2010 and 2011, that 60 million number and the $127 million number, that those increases were not caused by A&P's employees accruing more in benefits than A&P contributed to the fund, correct? A. Correct.
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Page 91 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Woodrich "Accordingly, the change in an employer's withdrawal liability obligation from one year to the next represents much more than simply the value of any vested benefits earned by its own employees in that year. Rather it represents the employer's share of the plan's obligation to provide all its vested benefits with a benefit upon retirement." When you say "it represents much more than simply the value of any vested benefits earned by its own employees," what is the "much more," what else does it represent? A. The change in the withdrawal, the
change in the unfunded vested benefits from one year to the next is also a function of the investment experience of the plan. In
addition to the benefits being earned less any benefits that have been paid out including also things such as plan experience, people retiring, people not retiring. Q. So things that really have nothing
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Page 96 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MS. ARADI: THE WITNESS: Woodrich Objection. Form.
I -- since it
doesn't start with the total withdrawal liability in my opinion it doesn't really get into taking that total withdrawal liability and trying to apportion it but rather look at just the benefit, trying to isolate the benefits accrued whereas what I was asked to do in accordance with the plan's method and ERISA is calculate the total withdrawal liability and once we had that withdrawal liability look at that and try and apportion it. BY MS. ALEXANDER: Q. But your issue then with the
reorganized debtors' method is that it looks at the benefits accrued rather than the total withdrawal liability; is that correct? A. Q. Correct. Do you have any opinion as to
whether the reorganized debtors' method is actually the more appropriate method under bankruptcy law?
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Page 101 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Woodrich by Darren French whereas I can't say that I definitively agree or disagree with the pieces but I would agree with the conclusion that under the reorganized debtors' method the amount would be zero. Q. The amount of FELRA's claim under
the reorganized debtors' method you agree would be zero using your own estimates of accrued benefits by employees of A&P, correct? A. Q. Correct. Let's look at the method described
as alternative method 1 in Mr. French's declaration? A. Q. Yes. Okay. Generally alternative
method 1 as described in Mr. French's declaration is to calculate the administrative claim -- excuse me -calculate the administrative portion of FELRA's withdrawal liability claim by determining what A&P's withdrawal liability under FELRA would have been had it have been a new employer entering FELRA on the
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Page 103 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Woodrich alternative method 1 proposed by Mr. French is an appropriate method for the bankruptcy court to use to calculate the administrative portion of FELRA's claim? A. For me, my opinion as to this
method ignores -- it basically assumes that it is a new employer when we know it is not. So that is why I didn't feel like this one was that, was appropriate to use. Q. Okay. Assuming for the moment
that the court does decide to use alternative method 1, are the numbers used by Mr. French in paragraph 17 of the declaration for A&P's share of the 2010 and 2011 pools of FELRA's overall unfunded vested benefits reasonable? A. Yes. MS. ARADI: Do you want to know if And you
they are correct, the numbers? have asked "reasonable."
I am just
wondering if you want to know if they are correct? MS. ALEXANDER: is fine. No. "Reasonable"
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Page 107 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Woodrich considered and decided not to use this method because you were instructed only to look at the total withdrawal liability. A. No. That was not that we were
instructed. The reason why we didn't is because it wasn't as apparent in looking at the total withdrawal liability assuming the 2012 withdrawal on how to abortion it into a pre and post-petition amount once again barring any lack of guidance if you will from ERISA. Q. Right. And you have no guidance
from the bankruptcy code as to what it means to file a bankruptcy petition, correct? A. Not -- we don't -- in our line of
work we don't refer to the bankruptcy code but under this method the amounts produced by Darren or Mr. French, you know, are reasonable. Q. Right. Your method that you use
to calculate the administrative portion of the withdrawal liability claim, that results in an administrative claim of approximately
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Page 108 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 $7 million, right? A. Q. Correct. And that $7 million reflects Woodrich
liabilities that accrue to the fund long before December of 2010, correct? A. Q. Yes. Okay. MS. ARADI: When you reach a
stopping point can we take a break? MS. ALEXANDER: Yes. One second.
I am not far from being done. MS. ARADI: Okay. Can you hang in
MS. ALEXANDER: another 20? MS. ARADI:
It has been an hour.
I usually ask in an hour. BY MS. ALEXANDER: Q. Let's look back just at your That is
December 21, 2012 declaration. Exhibit 1. page.
Page 3 at the bottom of the
And I will note for the record that this is a sentence that you added to this section of your declaration between the
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Page 127 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Woodrich withdrawn on the date it filed for bankruptcy from the withdrawal liability as of the actual withdrawal date." Did I read that correctly? MS. ARADI: THE WITNESS: BY MS. ALEXANDER: Q. We just discussed a few minutes Objection. Yes. Form.
ago the proposed methods, that Darren French gave in his declaration, he had three proposed methods for calculating FELRA's administrative claim. Isn't the alternative method 2 provided by Mr. French and feel free to take time to look back at his declaration, isn't the alternative method 2 proposed by Mr. French exactly the same as method A proposed by Cheiron in this advisory memo which is to calculate the administrative claim by subtracting A&P's withdrawal liability as of the petition date from A&P's liability as of the withdrawal date? A. Q. They are the same. They are the same methods,
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Page 129 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Q. Correct. Isn't this option, option B, Woodrich
proposed by Cheiron in their client advisory memo pretty similar to the reorganized debtors' proposed method for calculating the administrative claim? MS. ARADI: THE WITNESS: BY MS. ALEXANDER: Q. Before today you were not aware of Objection to form. It is.
these two alternative methods? MS. ARADI: THE WITNESS: Objection to form. I had not seen
the -- well, under option A, if you will, we discussed that as one method that we had discussed in our process of dealing -BY MS. ALEXANDER: Q. Let me rephrase my question. Before today you were not aware that Cheiron had put this out to its clients in its client advisory memo as two potential option for calculating the administrative portion of a withdrawal liability claim,
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EXHIBIT D
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SLEVIN & HART, P.C. 1625 Massachusetts Ave., NW, Suite 450 Washington, DC 20036 (202) 797-8700 Barry S. Slevin, Esq. Sharon M. Goodman, Esq. Laura Offenbacher Aradi, Esq. HALPERIN BATTAGLIA RAICHT, LLP 555 Madison Avenue, 9th Floor New York, NY 10022 (212) 765-9100 Alan D. Halperin, Esq. Donna H. Lieberman, Esq. Julie D. Dyas, Esq. Co- Counsel for the Food Employers Labor Relations Association and United Food and Commercial Workers Pension Fund UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK
)
In re: THE GREAT ATLANTIC & PACIFIC TEA COMPANY, INC., et al. Debtors.
) Chapter 11
)
) Case No. 10-24549 (RDD) )

)
) Jointly Administered
FOOD EMPLOYERS LABOR RELATIONS ASSOCIATION AND UNITED FOOD AND COMMERCIAL WORKERS PENSION FUNDS OBJECTIONS AND RESPONSES TO REORGANIZED DEBTORS SECOND SET OF REQUESTS FOR ADMISSION AND INTERROGATORIES The Food Employers Labor Relations Association and United Food and Commercial Workers Pension Fund ("FELRA"), by its undersigned counsel, provides the following Objections and Responses to Reorganized Debtors Second Set of Requests for Admission and Interrogatories (the "requests") propounded by Reorganized Debtors (referenced herein as "Debtors," as defined below) in the above-captioned bankruptcy pursuant to Rules 26, 33 and 36
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of the Federal Rules of Civil Procedure, Rules 7026, 7033 and 7036 of the Federal Rules of Bankruptcy Procedure and applicable Local Bankruptcy Rules. CeI 04 01 FELRA generally objects to the requests on the following grounds, each of which is expressly incorporated by reference in the responses to each Request below. All responses set forth herein are subject to and without waiving any of these General Objections: 1. FELRA objects to the term "Reorganized Debtors" because it is undefined. For
purposes of responding to the discovery requests, the term "Debtors," as used herein, refers to the Reorganized Debtors in the above-captioned action and their representatives, employees or agents, both before and after the effective date of the Plan of Reorganization, and named as follows with the last four digits of each Reorganized Debtors federal tax identification number: The Great Atlantic & Pacific Tea Company, Inc. (0974); 2008 Broadway, Inc. (0986); AAL Realty Corporation (3152); Adbrett Corporation (5661); Amsterdam Trucking Corporation
(1165); APW Supermarket Corporation (7132); APW Supermarkets, Inc. (9509); Bergen Street Pathmark, Inc. (1604); Best Cellars DC Inc. (2895); Best Cellars Inc. (9550); Best Cellars Licensing Corp. (2896); Best Cellars Massachusetts, Inc. (8624); Best Cellars VA Inc. (1720); Bev, Ltd. (9046); Bormans Inc. (9761); Bridge Stuart, Inc. (8652); Clay-Park Realty Co., Inc. (0902); Compass Foods, Inc. (0653); East Brunswick Stuart, LLC (9149); Farmer Jacks of Ohio, Inc. (5542); Food Basics, Inc. (1210); Gramatan Foodtown Corp. (5549); Grape Finds At DuPont, Inc. (9455); Grape Finds Licensing Corp. (7091); Greenlawn Land Development Corp. (7062); Hopelawn Property I, Inc. (6590); Kohls Food Stores, Inc. (2508); Kwik Save Inc. (8636); Lancaster Pike Stuart, LLC (9158); LBRO Realty, Inc. (1125); Lo-Lo Discount Stores,
Inc. (8662); Mac Dade Boulevard Stuart, LLC (9155); McLean Avenue Plaza Corp. (5227); Milik Service Company, LLC (0668); Montvale Holdings, Inc. (6664); North Jersey Properties, 2
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Inc. VI (6586); Onpoint, Inc. (6589); Pathmark Stores, Inc. (9612); Plainbridge, LLC
(5965);
SEG Stores, Inc. (4940); Shopwell, Inc. (3304); Shopwell, Inc. (1281); Spring Lane Produce Corp. (5080); Super FreshlSav-A-Center, Inc. (0228); Super Fresh Food Markets, Inc. (2491); Super Market Service Corp. (5014); Super Plus Food Warehouse, Inc. (9532); Supermarkets Oil Company, Inc. (4367); The Food Emporium, Inc. (3242); The Old Wine Emporium of Westport, Inc. (0724); The South Dakota Great Atlantic & Pacific Tea Company, Inc. (4647); Tradewell Foods of Conn., Inc. (5748); Upper Darby Stuart, LLC (9153); and Waldbaum, Inc. (8599). The location of Debtors corporate headquarters is Two Paragon Drive, Montvale, New Jersey 07645. 2. FELRA objects to the requests to the extent they seek or require the disclosure of
information protected from discovery by the attorney-client privilege, the work product doctrine (including Federal Rule of Civil Procedure 26(b)), the common interest privilege, confidentiality, or any other applicable privilege or immunity. This objection includes, but is not limited to, information that relates to mental impressions, conclusions, opinions, or legal theories of an attorney or representative of FELRA concerning this litigation. 3. FELRA objects to the Definition of "you" and "your" because including former
employees, agents, accountants, and actuaries is overly broad. 4. FELRA objects to the Definition of "French Declaration," which is defined in
Request for Admission No. 1, because the declaration dated January 11, 2013 has been amended by the declaration dated January 23, 2013. 5. FELRA objects to the requests, including the Definitions and Instructions, to the
extent they, individually or cumulatively, purport to impose upon FELRA duties and obligations beyond those required by the Federal Rules of Civil Procedure, the Federal Rules of Bankruptcy Procedure, Local Bankruptcy Rules, or any applicable Court Order.
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6.
FELRA objects to the requests to the extent the information sought are already in
Debtors possession, publicly available, or available to Debtors from another source that is more convenient, less burdensome, or less expensive. 7. 8. FELRA objects to the requests that do not specify a time period. The following responses are based upon facts and information known to FELRA
at the time of responding to these requests and on the current status of the litigation. FELRA expressly reserves the right to supplement, modify, or amend the responses and objections set forth herein. 9. Subject to and without waiving the foregoing General Objections, each of which
is hereby incorporated into each of FELRA s responses and specific objections to each request, FELRA responds as set forth below. SPECIFIC OBJECTIONS AND RESPONSES TO REQUESTS FOR ADMISSION 1. Admit that, under the Reorganized Debtors proposed method described in paragraphs 6-10 of the Amended Declaration of Darren French in Support of Reorganized Debtors Objection to FELRA s Motion for Entry of An Order Allowing an Administrative Expense Claim, dated January 11, 2013 (the "French Declaration"), the Debtors contributions exceeded the benefits accrued by the Debtors employees during the Post-Petition Period. RESPONSE: Subject to and without waiving its objections: FELRA admits this request.
2. Admit that the estimates provided in the French Declaration and Exhibit 1 to the French Declaration for (i) the Debtors contributions during the Post-Petition Period, and (ii) the benefits accrued by the Debtors employees during the Post-Petition Period, are reasonable for purposes of performing the calculations required by the methodology described in paragraphs 6-10 of the French Declaration. RESPONSE: FELRA objects to this request because the term "reasonable" is vague and ambiguous. Subject to and without waiving its objections: FELRA denies this request.
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3. Admit that the estimates of the Debtors share of the 2010 and 2011 "pool" of FELRAs overall unfunded vested benefits set forth in paragraph 17 of the French Declaration in support of "Alternative Method #1" are reasonable. RESPONSE: FELRA objects to this request because the term "reasonable" is vague and ambiguous. Subject to and without waiving its objections: FELRA denies this request.
4. Admit that the estimates of (i) the Debtors withdrawal liability to FELRA as of the Petition Date, and (ii) the Debtors withdrawal liability to FELRA as of the Withdrawal Date, as set forth in paragraph 19 of the French Declaration in support of "Alternative Method # 2," are reasonable. RESPONSE: FELRA objects to this request because the term "reasonable" is vague and ambiguous. Subject to and without waiving its objections: FELRA denies this request.
SPECIFIC OBJECTIONS AND RESPONSES TO INTERROGATORIES 1. If you deny that the estimates provided in the French Declaration and Exhibit 1 to the French Declaration for (i) the Debtors contributions during the Post-Petition Period, or (ii) the benefits accrued by the Debtors employees during the Post-Petition Period, are reasonable for purposes of performing the calculations required by the methodology described in paragraphs 6-10 of the French Declaration, explain why. RESPONSE: FELRA objects to this request because the term "reasonable" is vague and ambiguous. Subject to and without waiving its objections, FELRA responds that it does not dispute the estimates provided in the French Declaration and Exhibit 1 to the French Declaration of (i) the Debtors contributions to FELRA during the Post-Petition Period, and (ii) the benefits accrued by the Debtors employees under FELRAs plan of benefits during the Post-Petition
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Period, for purposes of performing the calculations required by the methodology described in paragraphs 6-10 of the French Declaration. Although FELRA did not perform a calculation to more accurately determine these amounts, FELRA agrees that the amount of contributions exceed the benefits accrued under the methodology described in paragraphs 6-10 of the French Declaration.
2. If you deny the estimates provided in the French Declaration and Exhibit 1 to the French Declaration for (i) the Debtors contributions during the Post-Petition Period, and (ii) the benefits accrued by the Debtors employees during the Post-Petition Period, are reasonable for purposes of performing the calculations required by the methodology described in paragraphs 6-10 of the French Declaration, provide your estimates for (i) and (ii). RESPONSE: FELRA objects to this request because the term "reasonable" is vague and ambiguous. Subject to and without waiving its objections, FELRA refers to its response to Interrogatory No. 1.
3. If you deny that the estimates of the Debtors share of the 2010 and 2011 "pool" of FELRA s overall unfunded vested benefits set forth in paragraph 17 of the French Declaration in support of Alternative Method # 1 are reasonable, explain why. RESPONSE: FELRA objects to this request because the term "reasonable" is vague and ambiguous. Subject to and without waiving its objections, FELRA responds that it does not dispute the estimates of the Debtors share of the 2010 and 2011 "pool" of FELRAs overall unfunded vested benefits set forth in paragraph 17 of the French Declaration in support of Alternative Method# 1.
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4. If you deny that the estimates of the debtors share of the 2010 and 2011 "pool" of FELRA s overall unfunded vested benefits set forth in paragraph 17 of the French Declaration in support of Alternative Method # 1 are reasonable, provide your alternative estimates for the methodology described in paragraphs 14-17 as "Alternative Method # 1." RESPONSE: FELRA objects to this request because the term "reasonable" is vague and ambiguous. Subject to and without waiving its objections, FELRA refers to its response to Interrogatory No. 3.
5. If you deny that the estimates of the Debtors withdrawal liability to FELRA as of the Petition Date or the Debtors withdrawal liability to FELRA as of the Withdrawal Date, each as set forth in paragraph 19 of the French Declaration in support of "Alternative Method # 2," are reasonable, explain why. RESPONSE: FELRA objects to this request because the term "reasonable" is vague and ambiguous. Subject to and without waiving its objections, FELRA responds that it does not dispute the estimate of the Debtors withdrawal liability to FELRA as of the Petition Date, as set forth in paragraph 19 of the French Declaration. FELRA further responds that the Debtors withdrawal liability to FELRA as of the Withdrawal Date, as set forth in paragraph 19 of the French Declaration, is the Debtors actual withdrawal liability as of the Withdrawal Date.
6. If you deny that the estimates of (i) the Debtors withdrawal liability to FELRA as of the Petition Date or (i) the Debtors withdrawal liability to FELRA as of the Withdrawal Date, each as set forth in paragraph 19 of the French Declaration in support of "Alternative Method # 2," are reasonable, provide your alternative estimates of (i) and (ii).
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RESPONSE: FELRA objects to this request because the term "reasonable" is vague and ambiguous. Subject to and without waiving its objections, FELRA refers to its response to Interrogatory No. 5.
Dated: February 13, 2013 Washington D.C.

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1J44 A SLEVIN & HAW, P.C. 1625 Massachusetts Ave., NW, Suite 450 Washington, DC 20036 (202) 797-8700 Barry S. Slevin, Esq. Sharon M. Goodman, Esq. Laura Offenbacher Aradi, Esq.
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HALPER1N BATTAGLIA RAICHT, LLP 555 Madison Avenue, 9th Floor New York, NY 10022 (212) 765-9100 Alan D. Halperin, Esq. Donna H. Lieberman, Esq. Julie D. Dyas, Esq.
Attorneys for the Food Employers Labor Relations Association and United Food and Commercial Workers Pension Fund
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CERTIFICATE OF SERVICE I certify that on this 13th day of February, 2013, I served the foregoing on counsel of record via email as set forth below: Michael B. Slade, Esq. Kristina Alexander, Esq. Kirkland & Ellis LLP 300 North LaSalle Chicago, IL 60654 michael.slade@kirkland.com kristina.alexander@kirkland.com
Counsel to Reorganized Debtors

Laura Offenbac
921617v2
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EXHIBIT E
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C LI E NT
Summer 2011
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A DV I S O R Y
Vol. 8 No. 2
Pension Plans Should Prepare Now for Reporting the Number of Participants for Whom No Contributions Were Made
ast year the Pension Benefit Guaranty Corporation (PBGC) published Technical Update 2010-1 on how to complete Line 14 of Schedule R for Form 5500, which requires reporting the number of participants under the plan on whose behalf no employer contributions were made for the plan year and for each of the two preceding plan years. Because last year was the first year the disclosure was required, PBGC provided several options for determining the number of employees to report. Those options are not available for plan years beginning in 2010. For calendar year plans, Form 5500 is due (with extensions) in October. Now would be a good time to review the rules for determining the number of participants to include on Line 14 of Schedule R, and to make sure that plan records will allow for accurate reporting. The instructions for Line 14 require the plan to count only those participants whose last contributing employer had withdrawn from the plan by the beginning of the relevant plan year. For this limited purpose, the plan is to disregard retired and deferred vested participants whose last contributing employer had not withdrawn from the plan by the beginning of the relevant plan year (even if the employer made no contributions for the plan year).1 The instructions
1
state that withdrawal liability payments are not to be treated as contributions for purposes of determining the number of participants on Line 14.
Clarification of Line 14 InstructionsLast Employer Rule

To reduce plans recordkeeping burdens, the information required for Line 14 relates to the number of inactive vested participants (retired or deferred vested participants) whose last contributing employer had withdrawn from the plan. Technical Update 10-1 clarifies that, for purposes of completing Line 14, a plan is not required to review the status of any employers that made contributions on behalf of a participant for covered service prior to the participants last contributing employer. The following example illustrates the counting for the 2009 Schedule R. Example: Participant A is a deferred vested participant for the 2009 plan year. Employer X made contributions on Participant As behalf from 1985 through 1989, and Employer Y made contributions on Participant As behalf from 1990 through 2003. Participant A did not thereafter work for any employer that made contributions to the plan. To answer Line 14 of the 2009 Schedule R, PBGC, continued on page 2
he definitions of withdrawal are those contained in T section 4203 of ERISA. Pension Plans Should Prepare Now for Reporting the Number of Participants for Whom No Contributions Were Made, page1 FASB Retreats from Multiemployer Pension Disclosure Rules: Tentatively Accepts More Workable Proposal, page 2
In This Client Advisory
Third Circuit Grants Post-Petition Withdrawal Liability Priority Status in Bankruptcy Case, page 3
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FASB Retreats from Multiemployer Pension Disclosure Rules: Tentatively Accepts More Workable Proposal
n response to an avalanche of negative comments, FASB has indicated that it will drop its original proposal for reporting an employers obligation to any multiemployer plans in which it participates and tentatively endorsed a compromise along the lines suggested by the commenters. Under the revised standard, if adopted, the employer would be required to disclose: 1. Each multiemployer plan to which it contributed; 2. The zone status of each such plan under the Pension Protection Act of 2006, i.e., whether the plan was classified as safe, endangered or critical presented in a comparable manner so balance sheets of different companies could be compared (for public companies the zone status would be presented for the last two plan years.) 3. Contributions for the current year for each income statement that is presented (three years for public companies).
4. Whether the surcharge that applies to plans in critical status has been imposed; and 5. The expiration date for each collective bargaining arrangement for each individually material plan in which the employer participates (only for the end of the most recent year). Although this may not be FASBs final word on disclosures regarding multiemployer plans, it greatly eases its originally proposed disclosure rules. FASB addressed quantitative disclosures at a later meeting. At that later meeting, FASB decided not to require disclosure of future contributions, but did vote to require a description of the nature and effect of any changes affecting comparability from period to period. FASB met on remaining issues on July 27. The FASB staff is working on a final draft which we expect relatively soon. n
PBGC, continued from page 1

the plan limits its review to whether Employer Y had withdrawn from the plan by the beginning of the 2009 plan year (disregarding whether Employer X had withdrawn from the plan). The plan determines that Employer Y withdrew from the plan in 2005, and includes Participant A in the number of participants on whose behalf no contributions were made by an employer as an employer of the participant on Lines 14a through 14c for the 2009, 2008, and 2007 plan years.2
2
Option
Instead of using the last employer rule, the plan may choose to count as participants on Lines 14a through 14c only those participants whose last contributing employer and all prior contributing employers had withdrawn from the plan by the beginning of the relevant plan year. Under this approach, the plan would review the list of all current contributing employers (employers that had not withdrawn from the plan by the beginning of the relevant plan year), and include on Line 14 only those inactive participants who had no covered service with any of these employers. The likely effect of this alternative will be to reduce the number of participants reported on Line 14. A plan using this approach must so indicate PBGC, continued on page 3
Technical Update 10-1: Multiemployer Plans Clarification of Schedule R (Form 5500) Instructions and Partial Reporting Relief for 2009. PBGC.gov. 08 June 2010. <http://www.pbgc.gov/res/other-guidance/tu/tu101.html>.
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Third Circuit Grants Post-Petition Withdrawal Liability Priority Status in Bankruptcy Case
n a potentially landmark opinion, the United States Court of Appeals for the Third Circuit ruled that withdrawal liability attributable to work performed after a company filed for bankruptcy was a priority claim. Prior to this ruling, bankruptcy courts had generally held that withdrawal liability claims were only entitled to general creditor status. The case, In re: Marcal Paper Mills, Inc.,1 involved a company that petitioned for reorganization under the Bankruptcy Code. The company continued to operate as a Debtor-in-Possession (DIP) and continued to abide by the terms of the existing collective bargaining agreement, including making contributions to the Trucking Employees of North Jersey Welfare/Pension Fund. Marcal was sold to a new company, which ceased employing union members and was not obligated to contribute to the pension fund. The pension fund assessed withdrawal liability and argued that the portion of the liability that arose while Marcal was operating in bankruptcy should be allowed as an administrative expense and so granted priority status in the reorganization. The bankruptcy court rejected that argument, however, and ruled that none of the withdrawal liability was an administrative expense.
1
The District Court reversed the decision, holding that the portion of withdrawal liability attributable to contributions for work performed after Marcal filed its bankruptcy petition was an administrative expense entitled to priority over the general creditors. The District Court remanded the withdrawal liability claim to the Bankruptcy Court to determine how it should be apportioned between pre- and post-petition periods. In its opinion affirming the District Courts decision, the Appeals Court noted that administrative expenses are those incurred to keep the bankrupt company operating and stated: . . . it is clear that the covered employees were required to perform work post-petition in order to keep DIP Marcal in operation, unquestionably conferring a benefit to the estate. Pursuant to the continued-CBA and pension plan, Marcal promised to provide pension benefits in exchange for that post-petition work.2 The Appeals Courts opinion leaves unanswered the central question of how to apportion withdrawal liability between pre- and post-petition. At one point Withdrawal Liability, continued on page 4
Case No, 09-4574 (3rd. Cir., June 16, 2011.)
Id. at p. 10.
PBGC, continued from page 2

on an attachment to the Schedule R. Note that the additional relief allowed by Technical Update 10-1 is not available for 2010. generate the information needed to complete Line 14. Also, Trustees should decide if they wish to use the option of not reporting any retirees or terminated vested participants that ever worked for an employer that is still making contributions. Not only will this method of counting participants and retirees likely result in a lower number being reported, it may be easier to comply with depending on the state of the plans records. n
Conclusion
Plan administrators may wish to review their participant records now to make sure they can identify the last contributing employer for retirees and terminated vested participants so that they can
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Withdrawal Liability, continued from page 3

in addressing Marcals argument that withdrawal liability is wholly subject to the whims of the market,3 the Appeals Court noted that Marcal assumed those risks with open eyes.4 Arguably this means that any increase in withdrawal liability that occurred after Marcal entered bankruptcy is an administrative expense because withdrawal liability flows directly from the DIPs decision to continue making contributions to the pension fund. Later, however, in discussing how to determine the postpetition portion of withdrawal liability, the Appeals Court opinion states: To the extent that withdrawal liability includes new vested benefits that arose from the post-petition work of covered employees, one can determine the extent to which those benefits have become underfunded.5
Id. at p. 12. Ibid. 5 Id. at p. 14.
3 4
Cheiron Observation: Thus, one is not certain if the apportionment is to be made by: (a) subtracting the withdrawal liability if the employer had withdrawn on the date it filed for bankruptcy from the withdrawal liability as of the actual withdrawal date; (b) determining the portion of the new vested benefits that have become unfunded, by comparing the value of those benefits with the value of the employers contributions and adjusting for any market losses; or (c) some other method.
Conclusion
The Marcal opinion gives plans some hope of collecting more withdrawal liability from employers undergoing bankruptcy reorganization but leaves unanswered questions. Apart from continuing litigation over how to apportion withdrawal liability between pre- and post-petition periods, the mere existence of a potential administrative claim may cause reorganizing employers to petition the bankruptcy court to reject the current collective bargaining agreement that requires pension contributions, thereby possibly avoiding any priority claim for withdrawal liability. n
Cheiron is a full-service actuarial consulting firm assisting Taft-Hartley, public sector and corporate plan sponsors manage their benefit plans proactively to achieve strategic objectives and satisfy the interests of plan participants and beneficiaries. To discuss how Cheiron can help you meet your technical and strategic needs, please contact your Cheiron consultant, or request to speak to one by emailing your request to info@cheiron.us. The issues presented in this Advisory do not constitute legal advice. Please consult with your own tax and legal counsel when evaluating their impact on your situation.
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Great Atlantic Withdrawal Liability Debtors Brief

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Reservation of Rights ...................................................................................................................14 Conclusion ....................................................................................................................................14

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First, in approximately June of 2011, the Debtors sold 12 of the so-called

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While FELRA cites to both McFarlins and Marcal to argue that an

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FELRAs expert formulated his opinion of how to calculate the Administrative

See Woodrich Deposition Tr. at 20:24 - 22:14; 25:10-22.

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New York, New York Dated: June 13, 2013

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$1,815,940 $1104.59/month $151,328 $1156.63/month $2,097,969

2010 2011 2012 Total postpetition contributions

$130,701 $1,815,940 $151,328 $2,097,969

$323.05/month $375.64/month $428.23/month

$38,880 $464,064 $33,888 $536,832

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Original Declaration of Darren French (December 21, 2012)

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