Fruehauf must pay shipyard benefits

January 21, 1995|By Kim Clark | Kim Clark,Sun Staff Writer

The families of nearly 700 retirees of the defunct Maryland Shipbuilding and Drydock Co. yesterday won back their health insurance -- for the time being, at least.

Senior U.S. District Judge Herbert N. Maletz issued a temporary restraining order requiring Fruehauf Trailer Corp. to restore health insurance to the approximately 668 shipyard retirees and their spouses.

Fruehauf cut off payments for medical and prescription insurance on Jan. 9.

Yesterday's order also required the Southfield, Mich.-based trailer maker to pay bills incurred since the cutoff and until a final court decision on just who should pay for the insurance.

John T. Ward, a Baltimore attorney who represented the retirees, said he was happy with the initial victory yesterday, but winning a permanent guaranty of health insurance will be difficult because the case was complicated by the takeovers, buyouts, and corporate reshufflings of the 1980s.

Mr. Ward said he believed Fruehauf can easily afford to pay the retirees' bills -- which he estimated are running between $60,000 and $80,000 a month -- but that the loss of insurance would be devastating for his clients.

He said he expected the court to schedule another hearing on the retirees' benefits within two to four weeks.

Fruehauf Trailer reported earning $1 million on sales of $276 million in the first nine months of 1994.

Richard Scheiner, attorney for Fruehauf, said his company would restore the insurance temporarily, but would continue its court battle to end all insurance payments for the shipyard retirees.

Mr. Scheiner said Fruehauf Trailer will argue that because the long-closed Maryland Shipbuilding no longer has any assets, it can't afford to pay the retirees' benefits.

And Mr. Scheiner insisted that while Fruehauf Trailer owns Maryland Shipbuilding -- which is just a corporate shell now -- it isn't responsible for the retirees' benefits.

"Maryland Shipbuilding has no assets and is not able to pay these benefits. . . . Fruehauf Trailer . . . has no obligation" to the retirees, he said.

Mr. Scheiner said he believes the original company, now called K-H Corp., may be responsible for the retirees' benefits.

The decision will require a judge to trace the tortuous corporate history of Maryland Shipbuilding, the attorney said.

A truck-trailer-making company called the Fruehauf Corp. bought the shipyard in the mid-1980s. And the managers of that company fought off a hostile takeover by completing a leveraged buyout -- borrowing against their company's assets to buy it. Swamped with debt, Fruehauf then started selling off its assets, including its name, and Maryland Shipbuilding.

The company that bought Maryland Shipbuilding is now called Fruehauf Trailer Corp. The remaining company changed its name to K-H Corp.

But attorneys for K-H said yesterday that Fruehauf Trailer was responsible for the retirees and had plenty of money to pay the benefits.

In a memo filed yesterday, attorney Donald J. Mulvihill noted that the owner of the shipyard had tried to cut off retirees' benefits once before -- in 1986 -- and later signed a consent decree promising to pay the benefits.

"Fruehauf Trailer Corp. has apparently decided that while it will honor some of its obligation, it will blatantly ignore its obligation to the . . . retirees," he said.

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