Opinions of the United
2007 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


9-6-2007

In Re: Shenango Grp
Precedential or Non-Precedential: Precedential

Docket No. 05-4805




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                                     PRECEDENTIAL

      UNITED STATES COURT OF APPEALS
           FOR THE THIRD CIRCUIT

                  Case No: 05-4805

         IN RE: SHENANGO GROUP INC.;
             SHENANGO INCORPORATED;
          THE HOCKENSMITH CORPORATION

                  Shenango Incorporated,

                              Appellant


   On Appeal from the United States District Court
       for the Western District of Pennsylvania
             District Court No. 04-cv-1111
   District Judge: The Honorable David S. Cercone


  Submitted Pursuant to Third Circuit L.A.R. 34.1(a)
                   May 15, 2007

Before: SMITH, NYGAARD, and ROTH, Circuit Judges

             (Filed: September 6, 2007)
George M. Cheever
Kirkpatrick & Lockhart Preston Gates Ellis
535 Smithfield Street
Henry W. Oliver Building
Pittsburgh, PA 15222
Counsel for Appellant

James A. Prostko
Todd T. Zwikl
Suite 600
600 Grant Street
Pittsburgh, PA 15219
Counsel for Appellee


                          OPINION


SMITH, Circuit Judge.

       This appeal asks whether Shenango Incorporated, the
reorganized debtor, was obligated under the Confirmed Plan of
Reorganization to fully fund its Pension Plan to cover an
increase in benefits to beneficiaries of so-called window
pensions in 2000 and 2001 immediately upon Shenango’s
determination to grant the enhanced benefits. Shenango
contends that the Confirmed Plan of Reorganization did not
require full funding of the increase in benefits at the time the
decision was made to grant the window pensions. The retired



                               2
 beneficiaries in Class 4B assert that the Confirmed Plan
imposed such an obligation. The Bankruptcy Court agreed with
the Class 4B retirees. The District Court affirmed. This appeal
followed. For the reasons set forth below, we will affirm the
judgment of the District Court.

                                 I.

       Shenango filed a voluntary petition for Chapter 11 relief
on December 14, 1992. On March 2, 1994, the Bankruptcy
Court confirmed Shenango’s Second Amended Joint Plan of
Reorganization (“Plan” or “Reorganization Plan”). Under the
Plan, the Class 4 Claims concerned retiree benefits.

        Section 4.04 of the Reorganization Plan addressed, inter
alia, the Class 4 retirees’ rights to medical benefit coverage, life
insurance, and pension benefits. The introductory clause of this
subsection stated that “[n]either Debtors nor any member of the
Aloe Controlled Group[, Shenango’s Holding Company,] shall
have any funding obligations to the Pension Plan as a result of
this section 4.04(h), other than the obligations which exist
without regard thereto.” Subsection (h) concerned the interest
of a subclass of retirees, known as the Class 4B retirees, in the
allocation of any Pension Plan surplus. Paragraph (x) of
subsection 4.04(h) pertained to certain conditions regarding
amending the Pension Plan. It specified that the Pension Plan
shall be amended to provide, inter alia, that none of the assets
of the Pension Plan would revert back to the Pension Plan


                                 3
sponsor until all liabilities to Class 4B Claimants had been
satisfied by either a distribution of any surplus or a benefit
enhancement. Paragraph (x) also specified that until the Class
4B Claimants received their maximum entitlement,

       no benefit increases may be provided for any
       participants in the Pension Plan who are not Class
       4B Claimants, unless ... the Pension Board has
       determined that Shenango has adequate financial
       resources to fully fund such increases without
       taking into account either Surplus then or
       thereafter expected to be available under the
       Pension Plan ....

Although the Bankruptcy Court confirmed the Reorganization
Plan in March of 1994, it did not issue the final decree until
March 3, 1999.

       In 1999, the Pension Board switched from a “60/40
investment strategy” to a “dedicated bond portfolio.” This
proved to be a successful strategy as the Pension Plan captured
the appreciation of its assets, thereby allowing it to maintain the
surplus which existed at that time.

       On August 1, 2000, Shenango and the United
Steelworkers of America (“USWA”) agreed to an early
retirement window pension for 14 individuals. The agreement
provided for an additional payment to each recipient for two



                                4
years. The total benefits to be paid to the window pension
recipients were valued at $1,042,500.00.

        In 2001, a second window pension was considered. In
May of 2001, Edward Krafft, a retired engineer with Shenango,
who was also on the Pension Board as the retiree representative,
sent a letter to the Pension Board objecting to the offering of a
second window pension to certain active employees because the
first window pension agreed to in August of 2000 had yet to be
funded. Despite this objection, Shenango and the USWA
agreed in August of 2001 to a second window pension. The
benefits under this second window pension were valued at
$766,600.00. The Class 4B retirees asserted that full funding
was required under the terms of § 4.04(h) of the Reorganization
Plan at the time the determination was made to grant this second
window pension to non-Class 4B retirees, and they demanded
that Shenango tender the requisite funding at that point in time.
When their demands were not met, the Class 4B retirees’
representative filed a motion to reopen the bankruptcy case. The
representative simultaneously filed a motion to compel
compliance with the Reorganization Plan. Shenango argued that
the Bankruptcy Court lacked jurisdiction over this dispute.

       In an opinion and recommendation dated July 27, 2004,
the Bankruptcy Court concluded that it possessed “related to”
jurisdiction under 28 U.S.C. § 157(c). Because this was not a
core proceeding, the Bankruptcy Court recommended that the
District Court grant the motion to compel compliance. The


                               5
Bankruptcy Court reviewed the history of the negotiations
relating to Shenango’s reorganization. For example, the
Bankruptcy Court noted that although the retirees had agreed to
a reduction in medical benefits, the strategy was valuable
because it preserved their status as an unimpaired class and
hence their bargaining position. Pension Plan liabilities were
also negotiated, according to the Bankruptcy Court. Although
“the retirees attempted to obtain a cost of living benefit in their
pensions,” Bankruptcy Court slip op. at 5, they were able to
obtain only a claim on behalf of the Class 4B retirees to a
possible pension surplus, and the provision in § 4.04(h)(x)
prohibiting any pension increase to other retirees if the increase
was not fully funded. In other words, the retirees’ negotiations
netted only “a prohibitory benefit, that is, no increased benefits
to new retirees unless increased benefits were fully funded.
That provision protects both a potential surplus and also helps
delay a potential deficiency in the pension fund.” Bankruptcy
Court slip op, at 5. The Aloe Controlled Group also received a
valuable benefit, the Bankruptcy Court explained, as it was
“relieved of [its] obligation to fund the pension plan under
certain conditions.” Bankruptcy Court slip op. at 15.

       Against this backdrop, the Bankruptcy Court noted that
the parties relied upon the text of the Reorganization Plan to
support their respective positions in the funding dispute.
According to the Class 4B retirees, the requirement to fully fund
the Pension Plan at the time the decision was made to grant the
window pension was set forth in § 4.04(h)(x), which specified


                                6
that no increase shall be provided “unless the Pension Board has
determined that Shenango has adequate financial resources to
fully fund such increases without taking into account either
Surplus ....” Shenango refused to fund the benefit increases
based on the Reorganized Plan’s statement in § 4.04(h) that it
shall not have “funding obligations to the Pension Plan as a
result of this section ....” After consideration of these
provisions, the Bankruptcy Court declared that the
Reorganization Plan was not ambiguous and that there was a
“clear duty imposed upon Shenango to fully fund benefit
increases without taking into account either surplus then or
thereafter expected to be available, otherwise, the provision of
§ 4.04(h)(x)(1) is rendered a nullity.” The Bankruptcy Court
pointed out that fully funding any increase in benefits “clearly
prevents dilution and prevents an earlier failure of the pension
fund,” that Shenango essentially paid “for the window pensions
with the appreciated values in the pension fund because these
higher values exceeded ERISA minimums,” and that
Shenango’s “shareholders benefitted from the use of the
appreciated status of the Pension Plan to fund the costs of
increased benefits with no expense to Shenango.” The
Bankruptcy Court concluded, based on the language of the Plan
and the circumstances, that the first part of § 4.04(h)(x) prohibits
pension benefit increases, but the latter part creates an express
exception permitting “increased benefits if the Pension Board
has determined that Shenango has adequate financial resources
to fully fund such increases without taking into account
surplus.” Bankruptcy Court slip op. at 18. Accordingly, the


                                 7
Bankruptcy Court recommended that Shenango be directed to
fund the window benefits at the amount of their valuation, plus
interest, and that Shenango be enjoined from granting future
benefits without fully funding such increases.

       On September 27, 2005, the District Court adopted the
Bankruptcy Court’s opinion and recommendation, and directed
Shenango to “fund the pension plan in the amounts of
$1,042,500.00 and $766,660.00, as damages for breach of
contract, plus interest in the amount of seven percent ....” This
timely appeal followed.

                                II.

       Shenango contends that the Bankruptcy Court did not
have “related to” jurisdiction under 28 U.S.C. § 157(c) over this
post-confirmation dispute.       It relies on In re Resorts
International, Inc., 

, 169 (3d Cir. 2004), which
concluded that “related to” jurisdiction was lacking over a post-
confirmation malpractice claim by the trustee of a litigation trust
against the trust’s accountants. Although there are a few
similarities between this case and Resorts International, we
conclude that the Bankruptcy Court correctly determined that it
had “related to” jurisdiction.

        In Resorts International, we reiterated that “‘[a]n action
is related to bankruptcy if the outcome could alter the debtor’s
rights, liabilities, options or freedom of action (either positively


                                 8
or negatively) and which in any way impacts upon the handling
and administration of the bankrupt 

(quoting Pacor, Inc. v. Higgins, 

, 994 (3d Cir.
1984)). We recognized that “related to” jurisdiction is limited
and that it “‘does not extend indefinitely, particularly after the
confirmation of a plan and the closing of a case.’” 

v. Bernstein, 

, 553 (3d Cir. 1997)).
Thus, “the scope of bankruptcy court jurisdiction diminishes
with plan confirmation,” 

and the essential inquiry
post-confirmation is “whether there is a close nexus to the
bankruptcy plan or proceeding sufficient to uphold bankruptcy
court jurisdiction ....” 

“Matters that affect the
interpretation, implementation, consummation, execution or
administration of the confirmed plan will typically have the
requisite close nexus.” 

        Applying these principles, we concluded in Resorts
International that the close nexus for “related to” jurisdiction
was lacking. Inasmuch as the malpractice action was initiated
post-confirmation and the bankruptcy estate no longer existed,
we noted that the malpractice claim could not affect the
bankruptcy estate. Because the debtor was not a party to the
action, we observed that the malpractice action could have “only
incidental effect on the reorganized debtor.” 

We also
pointed out that the malpractice claim could not interfere with
the implementation of the Reorganization Plan or affect the
creditors as they were no longer creditors of the bankruptcy
estate but beneficiaries of the litigation trust. 

International is instructive. It teaches that the
mere fact that a dispute may arise post-confirmation is not
determinative of the jurisdictional question. Rather, the inquiry
is multi-faceted. 

that approach, and even
though the dispute arose post-confirmation as in Resorts
International, we conclude that the retirees’ claim that Shenango
is obligated by the Reorganization Plan to immediately fund the
Pension Plan has a close nexus with the bankruptcy proceeding.


        Unlike Resorts International, where the debtor was not
a party to the malpractice action, here, Shenango is a party to the
dispute. This dispute concerns Shenango’s Reorganization Plan
and the interpretation of the Plan’s provision relating to the
debtor’s liability for fully funding any benefit increases to
participants of the Pension Plan other than the Class 4B retirees.
That potential liability supplies the close nexus. Based on the
valuations of the benefits under the window pensions, the effect
on the debtor’s liabilities will be more than incidental.

       Accordingly, we conclude that the Bankruptcy Court
appropriately exercised “related to” jurisdiction under 28 U.S.C.
§ 157(c), and that the District Court had appellate jurisdiction
under 28 U.S.C. § 158(a). We have authority to review the




                                10
District Court’s final judgment under 28 U.S.C. § 158(d)(1).1

                              III.

       Shenango contends that the Bankruptcy Court erred
because there is only one reasonable construction of the
Reorganization Plan and that interpretation is that Shenango is
not obligated to fully fund any increase in benefits to other
participants in the Pension Plan at the time the determination is
made to grant the enhanced benefits. The Class 4B retirees
submit that the Bankruptcy Court correctly construed the
provision to require advance funding of any increase in pension
benefits granted to other participants. Because the parties each
press their interpretation of §4.04(h)(x), we must consider the
alternate constructions and whether the Reorganized Plan is
ambiguous.

                               A.


       1
        In Resorts International, we acknowledged that the
plan of reorganization contained a retention of jurisdiction
provision. We instructed, however, that such a provision
was irrelevant if jurisdiction was lacking under 28 U.S.C.
§ 1334 or 28 U.S.C. § 

. Heeding this
instruction, we have analyzed whether there was
jurisdiction under § 157, and have not placed any
independent weight upon the retention of jurisdiction
provision in Shenango’s Reorganization Plan.

                               11
       In construing a confirmed plan of reorganization, we
apply contract principles. See Hillis Motors, Inc. v. Hawaii
Auto. Dealers’ Ass’n, 

, 588 (9th Cir. 1993); In re
Stratford of Texas, Inc., 

, 368 (5th Cir. 1981).
Because the construction of a contract generally presents a
question of law, we exercise plenary review. See Universal
Minerals, Inc. v. C. A. Hughes & Co., 

, 101 (3d Cir.
1981) (observing that “we employ the fullest scope of review”
to the application of legal precepts). We must be mindful,
however, that a confirmed plan of reorganization is an order of
the bankruptcy court. See 11 U.S.C. §§ 1129 (providing that the
“court shall confirm a plan”), 1141, 1143, and 1144 (referring
to the order of confirmation). There is a difference between
reviewing the straightforward application of contract principles,
and reviewing a bankruptcy court’s interpretation of its own
order contained in a confirmed plan of reorganization. This
Court has yet to adopt a standard for reviewing a bankruptcy
court’s interpretation of its own order.

       Several of our sister courts of appeals have considered
what standard of review should be employed when reviewing a
bankruptcy court’s interpretation of its own order. In Matter of
Weber, 

(7th Cir. 1994), after acknowledging that
the confirmed plan of reorganization was ambiguous, the
Seventh Circuit concluded that the District Court erred by
conducting de novo review of the Bankruptcy Court’s
interpretation of the plan. It declared that the “reviewing court
should extend to that interpretation the same deference that is


                               12
otherwise paid to a court’s interpretation of its own order.” 

It reasoned that the bankruptcy court’s interpretation
was based on an assessment of “‘words on which [the court] has
already passed judgment. Under these circumstances, we
believe that full deference to the court’s decision is in order.’”

of Chicago, Milwaukee, St. Paul & Pacific
R.R. Co., 

, 1264 (7th Cir. 1992)). In Monarch
Life Ins. Co. v. Ropes & Gray, 

, 983 (1st Cir. 1995),
the First Circuit agreed that deferential review of the scope of
the confirmation order was appropriate “because the bankruptcy
court was directly engaged in the give-and-take of the
confirmation proceedings and had the better vantage point ....”2


       2
        See also In re Dow Corning Corp., 

,
677 (6th Cir. 2006) cert. denied 

(2007)
(explaining that, because the phrase in the plan had more
than one interpretation, bankruptcy court’s ultimate
interpretation was subject to review for an abuse of
discretion); In re Optical Tech., Inc., 

, 1300
(11th Cir. 2005) (adopting the deferential approach of the
Seventh and Eighth Circuits); In re Dial Business Forms,
Inc., 

, 744 (8th Cir. 2003) (following the
approach set forth in In re Weber); In re Bono Dev., Inc., 

, 721-22 (10th Cir. 1993); In re Terex Corp., 

, 172 (6th Cir. 1993) (concluding that the
bankruptcy court’s interpretation of confirmation plan was
subject to deferential review); but see In re Duplan Corp.,

(2d Cir. 2000) (stating that the bankruptcy

                               13
        The Fourth Circuit found the First Circuit’s decision in
Monarch Life instructive in In re Tomlin, 

(4th Cir.
1997). In Tomlin, the Court initially had to review whether the
bankruptcy court’s order was ambiguous. The Court instructed
that this inquiry was subject to de novo review. 

After determining that the order was in fact ambiguous, the
Court considered its standard of review over the bankruptcy
court’s interpretation of its order, and concluded that substantial
deference to the bankruptcy court’s analysis of its own order
was appropriate. 

Because the record demonstrated
that the bankruptcy court’s interpretation was reasonable under
the circumstances, it effectively reinstated the bankruptcy
court’s order.

        The appeal in In re National Gypsum Co., 

(5th Cir. 2000), required the Court to review a bankruptcy
court’s interpretation of its confirmation order. It recognized
that its review of the bankruptcy court’s interpretation was
deferential, but it pointed out that it need not defer if there was
no ambiguity to interpret. 

Because the plan of
reorganization was not ambiguous, the Fifth Circuit refused to


court’s interpretation of text of the plan, confirmation order
and final decree was a conclusion of law subject to plenary
review, and failing to acknowledge precedent in Comm’n
of Dep’t of Publ. Util. v. New York, N. H. & H. R. Co., 

, 563-4 (2d Cir. 1949), that a court’s construction
of a plan of reorganization is entitled to great weight).

                                14
defer to the bankruptcy court’s interpretation, which ignored the
plain meaning of the plan documents.

        The approach employed in In re Tomlin and National
Gypsum demonstrate that an appellate court must distinguish
between the review of a bankruptcy court’s application of legal
principles and the review of a bankruptcy court’s actual
interpretation of an ambiguous provision in its own order. As
the Eleventh Circuit pointed out in In re Optical Technologies,
simply because a bankruptcy court’s interpretation of its order
is entitled to deference does not “insulate all aspects of the
bankruptcy court’s opinion from anything more searching than
abuse of discretion review. The rationale for deferring to a
court’s interpretation of its own order does not extend to its
analysis of broad legal principles 

.

       We agree with the majority view that a bankruptcy
court’s interpretation of its own order ought to be subject to
review for an abuse of discretion. This deferential standard
should not apply, of course, if the issue being reviewed presents
only a question of law. 

approach both
ensures the appropriate role of this Court to review de novo pure
questions of law, and also accords great weight to the
Bankruptcy Court’s construction of an order with which it is
familiar by virtue of its direct involvement in the proceedings.
Thus, we conclude that the initial inquiry of whether Shenango’s
Reorganization Plan is ambiguous is subject to de novo review.
 If the Plan is ambiguous, we will defer to the Bankruptcy


                               15
Court’s interpretation unless it is unreasonable under the
circumstances.

                               B.

       Shenango’s Reorganization Plan provides that it “shall be
governed by, and construed and enforced in accordance with the
laws of the Commonwealth of Pennsylvania.”                 Under
Pennsylvania law, the paramount consideration in construing a
contract is the intent of the parties. Mellon Bank, N.A. v. Aetna
Bus. Credit, 

, 1009 (3d Cir. 1980). “The strongest
external sign of agreement between contracting parties is the
words they use in their written contract.” 

terms that are capable of one reasonable interpretation must be
given effect without reference to matters outside the contract.”
Bohler-Uddeholm, Inc. v. Ellwood Group, 

, 93 (3d
Cir. 2001) (internal citation and quotation marks omitted). If the
contract terms are ambiguous and susceptible to more than one
reasonable interpretation, however, the meaning of the contract
must be interpreted by the factfinder. 

Mellon 

, n.10. We review de novo the determination
of whether a provision in a confirmed plan of reorganization is
ambiguous. See 

(noting that
whether a contract is ambiguous is a question of law subject to
plenary review).

      Here, the Bankruptcy Court appropriately considered
whether § 4.04(h) of the Plan contained an ambiguity as to


                               16
Shenango’s funding obligation for any increase in pension
benefits. It declared that the Plan was not ambiguous and that
there was a clear duty imposed upon Shenango to fully fund the
increase. We agree with the Bankruptcy Court that the Plan
clearly obligates Shenango to fully fund any increase in pension
benefits to participants in the Pension Plan other than Class 4B
retirees. We conclude, however, that § 4.04(h)(x) of the
Reorganized Plan does not address the timing of Shenango’s
funding obligation and that the alternative interpretations offered
by the parties are plausible. In short, § 4.04(h)(x) of the
Reorganized Plan is ambiguous with respect to the temporal
component of Shenango’s funding obligation for any increase in
benefits to other Pension Plan participants.

        Section 4.04(h)(x) precludes an increase for other
participants in the Pension Plan “unless . . . the Pension Board
has determined that Shenango has adequate financial resources
to fully fund such increases without taking into account . . . [the]
Surplus . . . .” As the Bankruptcy Court determined, this
provision may be construed as implicitly imposing a duty upon
Shenango to fully fund any increase in benefits at the time when
the determination is made to grant the enhancement.

       Shenango’s alternative construction is that its funding
obligation for any increase in benefits to other pension
participants is governed by ERISA, that statute’s penalty
provisions, and other federal law applicable to pension plans.
This alternative is not inconsistent with § 4.04(h)(x) because the


                                17
plain words of that provision demand only that the Pension
Board make a decision as to Shenango’s financial ability to fully
fund such an increase before the increase may be granted. It is
silent with regard to whether Shenango must immediately tender
the requisite funding for an increase in benefits to other
participants at the time the benefits are granted or at some later
point in time. Thus, § 4.04(h)(x) does not clearly establish
whether the parties intended Shenango’s funding obligation to
accrue when the determination is made to grant participants
other than Class 4B retirees an increase in benefits or at some
later point as required by ERISA, its penalty provisions, and
other laws governing pension plans.

        Although the Bankruptcy Court failed to recognize the
ambiguity in § 4.04(h)(x) with respect to the temporal
component of Shenango’s funding obligation, we need not
vacate the District Court’s judgment, which adopted the
Bankruptcy Court’s analysis, and remand for an interpretation
of this provision of the Plan. Such a course is unnecessary
because the Bankruptcy Court’s analysis included findings of
fact, which are not disputed, that support its conclusion that
Shenango was obligated to tender the funding immediately upon
a determination to increase benefits for participants other than
the Class 4B retirees. See In re Dow Corning 

(disagreeing with Bankruptcy Court’s determination that
the Plan was not ambiguous, and proceeding to review question
of whether Court’s interpretation was an abuse of discretion).



                               18
        We find no abuse by the Bankruptcy Court in its
determination that the Reorganization Plan required Shenango
to advance the funding for any increase in pension benefits to
participants other than Class 4B retirees at the time when the
determination was made to grant such an enhancement. The
Court considered the context of the dispute and the history of the
negotiations between the parties which resulted in the retirees’
claim to the pension plan surplus. It pointed out that the
Reorganization Plan not only established a claim by the retirees
to any surplus, but also endeavored to protect any surplus and
avoid a deficiency. Interpreting the Plan to require Shenango to
tender the funding necessary for any increase in benefits to other
pension plan participants at the time the determination is made
to grant such an increase, regardless of when funding may be
dictated by other laws, furthers this objective. The immediacy
of the funding requirement was also consistent, the Bankruptcy
Court noted, with the fact that Shenango had fully funded earlier
increases in benefits to participants other than Class 4B retirees.
In addition, the Bankruptcy Court observed that financial
statements for 1997 and 1998 referenced the fact that Shenango
was obliged under the Reorganization Plan to fund any benefit
increases to certain participants in the Pension Plan
“‘irrespective of whether or not required by ERISA minimum
funding requirements ....’”

      Accordingly, we defer to the interpretation of the
Bankruptcy Court, which was directly involved in this lengthy
and complex proceeding. The interpretation that funding was


                                19
required immediately upon a determination to grant an
enhancement in benefits to participants other than Class 4B
retirees is not contrary to the Reorganized Plan. As there is
factual support for this interpretation, we will affirm the District
Court’s judgment.




                                20