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The district court agreed that the termination of the pension plan was not a “core proceeding” and vacated the bankruptcy court's approval of the plan's termination. The court noted that the approval of the pension plan termination was a non-core proceeding that could not be reclassified just because the issue could have an impact on United's bankruptcy proceedings. Moreover, the right to initiate the termination proceeding arose “exclusively from Title IV of ERISA, not the Bankruptcy Code.” Because the proceeding was non-core, and since United did not consent to the bankruptcy court's jurisdiction, the bankruptcy court did not have jurisdiction to approve the termination of the pilots' pension plan.

Failing to Maintain Number of Stores Not a Material Breach of Co-Branding Agreement

The Seventh Circuit has ruled that Kmart could assume an executory contact with a bank that provided a co-branded credit card, finding that the debtor's failure to maintain as many retail outlets post-petition was not a material breach of the contract. In re Kmart Corp., No. 05-1488, (Jan 4, 2006).

Although Kmart wanted to assume its contract, the bank argued that Kmart was in default because it was no longer a “mass merchandise retailer,” noting that when the contract was signed the retailer had about 2200 stores. Post-petition, that number was reduced to 1514, although Kmart was still one of the ten largest retail chains in the nation. Affirming both the bankruptcy and district courts, the Seventh Circuit ruled that this reduction in size was not a material breach of the agreement between the parties, which did not include any language requiring Kmart to maintain any certain number of stores. The court further rejected the bank's argument that Kmart breached the agreement by failing to staff its executive committee with “qualified” personnel. But, the court noted, the contract allowed either party to remove or replace, with or without cause, any executive committee member appointed by such party. That is what Kmart did, the court observed. The contract set neither minimum qualifications for membership, nor a minimum number of representatives that Kmart must appoint.

Bankruptcy Court Lacked Jurisdiction to Approve Pension Termination

The District Court for the Northern District of Illinois has ruled that a bankruptcy court lacks the jurisdiction to approve the involuntary termination of a pension plan because approval of the termination does not involve a “core proceeding” under the Bankruptcy Code. Air Line Pilots Ass'n v. Pension Benefit Guaranty Corp. (In re United Air Lines Inc.), No. 05 C 6955 (Feb 2, 2006).

The Pension Benefit Guaranty Corporation's position was that the bankruptcy court did not have jurisdiction to consider the termination of the pilots' pension plan in the United bankruptcy because the authority granted by Congress to approve the involuntary termination of a defined benefit plan was granted expressly to the federal district courts under the Employee Retirement Income Security Act. Nevertheless, the case was transferred to the bankruptcy court, which following a trial on the issue found that the PBGC had established that termination was necessary by a preponderance of the evidence and approved the PBGC's petition to terminate the pilots' plan. Despite this finding, the PBGC appealed the bankruptcy court's ruling questioning among other things, the jurisdiction of the bankruptcy court to decide the involuntarily termination of the pilot's pension plan.

The district court agreed that the termination of the pension plan was not a “core proceeding” and vacated the bankruptcy court's approval of the plan's termination. The court noted that the approval of the pension plan termination was a non-core proceeding that could not be reclassified just because the issue could have an impact on United's bankruptcy proceedings. Moreover, the right to initiate the termination proceeding arose “exclusively from Title IV of ERISA, not the Bankruptcy Code.” Because the proceeding was non-core, and since United did not consent to the bankruptcy court's jurisdiction, the bankruptcy court did not have jurisdiction to approve the termination of the pilots' pension plan.

Failing to Maintain Number of Stores Not a Material Breach of Co-Branding Agreement

The Seventh Circuit has ruled that Kmart could assume an executory contact with a bank that provided a co-branded credit card, finding that the debtor's failure to maintain as many retail outlets post-petition was not a material breach of the contract. In re Kmart Corp., No. 05-1488, (Jan 4, 2006).

Although Kmart wanted to assume its contract, the bank argued that Kmart was in default because it was no longer a “mass merchandise retailer,” noting that when the contract was signed the retailer had about 2200 stores. Post-petition, that number was reduced to 1514, although Kmart was still one of the ten largest retail chains in the nation. Affirming both the bankruptcy and district courts, the Seventh Circuit ruled that this reduction in size was not a material breach of the agreement between the parties, which did not include any language requiring Kmart to maintain any certain number of stores. The court further rejected the bank's argument that Kmart breached the agreement by failing to staff its executive committee with “qualified” personnel. But, the court noted, the contract allowed either party to remove or replace, with or without cause, any executive committee member appointed by such party. That is what Kmart did, the court observed. The contract set neither minimum qualifications for membership, nor a minimum number of representatives that Kmart must appoint.