Wednesday, July 14, 2010

employment - health insurance - employer Ch. 11 bankruptcy

In re Visteon Corp. - 3d Circuit - July 13, 2010 (95 pp.)

The Industrial Division of the Communications Workers of America , as the representative of approximately 2,100 retirees from Visteon Corporation’s manufacturing plants, appeals the district court’s order, affirming the bankruptcy court’s order permitting Visteon to terminate retiree health and life insurance benefits without complying with the procedures set forth in 11 U.S.C. § 1114.

Both courts reasoned that, notwithstanding the language of that statute, it would be unreasonable to interpret § 1114 as limiting an employer’s right to modify or terminate benefits during the pendency of a Chapter 11 bankruptcy proceeding, if the employer could unilaterally terminate those benefits outside of bankruptcy pursuant to a reservation of rights clause in the benefit plan. Since Visteon reserved the right to unilaterally terminate the retiree benefits at issue here, the courts concluded that Congress did not intend § 1114 to limit that right.

On appeal, the union argues that the plain language and legislative history of § 1114 compel exactly the result the district and bankruptcy courts avoided. The union claims that Congress intended to restrict a debtor’s ability to modify or terminate, except through the § 1114 process, any retiree benefits during a Chapter 11 bankruptcy proceeding, regardless of whether the debtor could terminate those benefits outside of bankruptcy. Based on the plain language of § 1114 (as well as its legislative history), we agree. Accordingly, as explained more fully below, we will reverse the order of the district court and remand for further proceedings.


Section 1114 was the primary substantive component of the Retiree Benefits Bankruptcy Protection Act of 1988 (“RBBPA”), Pub. L. No. 100-334, 102 Stat. 610 (1988) (codified as amended at 11 U.S.C. §§ 1114, 1129(a)(13)). Congress enacted the RBBPA in response to LTV Corporation’s termination of the health and life insurance benefits of 78,000 retirees during its 1986 Chapter 11 bankruptcy, with no advance notice to the affected retirees.

In crafting § 1114, Congress provided certain procedural and substantive protections for retiree benefits during a Chapter 11 proceeding. Section 1129(a)(13) ensures that some measure of those protections extends beyond the proceeding....and provides additional protection for retiree benefits by giving them priority they would not otherwise have.