In Re Visteon Corporation

• Citation: 612 F.3d 210
• Decision Date: 13 July 2010
• Docket Number: No. 10-1944.,10-1944.
• Parties: In re VISTEON CORPORATION, et al.IUE-CWA, The Industrial Division of the Communications Workers of America, AFLCIO, CLC, Appellant,v.Visteon Corporation, Debtors and Debtors In Possession; and The Official Committee of Unsecured Creditors of Visteon Corporation, Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)

612 F.3d 210

In re VISTEON CORPORATION, et al.

IUE-CWA, The Industrial Division of the Communications Workers of America, AFLCIO, CLC, Appellant,

v.Visteon Corporation, Debtors and Debtors In Possession; and The Official Committee of Unsecured Creditors of Visteon Corporation, Appellees.

No. 10-1944.

United States Court of Appeals, Third Circuit.

Argued May 28, 2010.

Filed July 13, 2010.

As Amended July 15, 2010.

As Amended July 19, 2010.

Thomas M. Kennedy, Esq. (Argued), Susan M. Jennik, Esq., Kennedy, Jennik & Murray, New York, NY, Attorney for Plaintiff-Appellant.

Susan E.Kaufman, Esq., Heiman, Gouge & Kaufman, Wilmington, DE, Attorney for Plaintiff-Appellant.

Steven D. McCormick, Esq. (Argued), Andrew B. Bloomer, Esq., Patrick M. Bryan, Esq., Kirkland & Ellis, Chicago, IL, Laura D. Jones, Esq., James E. O'Neill, III, Esq., Mark M. Billion, Esq., Pachulski, Stang Ziehl & Jones, Wilmington, DE, Attorneys for Defendant-Appellee Visteon Corporation.

Robert J. Stark, Esq. (Argued), Howard L. Siegel, Esq., Brown Rudnick, New York, NY, William P. Bowden, Esq., Gregory A. Taylor, Esq., Ashby & Geddes, Wilmington, DE, Attorneys for Defendant-Appellee Official Committee of Unsecured Creditors.

Before: McKEE, Chief Judge, and RENDELL and STAPLETON, Circuit Judges.

OPINION

McKEE, Chief Judge.

The Industrial Division of the Communications Workers of America (“IUE-CWA” or “the union”), as the representative of approximately 2,100 retirees from Visteon Corporation's manufacturing plants in Connersville and Bedford, Indiana, 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.¹

I. Factual and Procedural History

Visteon Corporation is one of the world's largest suppliers of automotive parts. Originally formed as a division of Ford Motor Corporation, it spun off in 2000 to become its own corporate entity. In doing so, it took over operation of plants in Connersville and Bedford, Indiana previously run by Ford or its wholly-owned subsidiaries. See J.A. 3848. Hourly workers at both plants were represented by the IUE-CWA. See J.A. 2218-326, 3242-392.

For decades, Visteon, or its predecessors-in-interest, have provided certain health and life insurance benefits to retirees from these plants. See, e.g., J.A. 504, 1163. Visteon's agreement to provide such benefits has been memorialized in successive collective bargaining agreements (“CBAs”), as well as in summary plan descriptions (“SPDs”).

The most recent SPDs at both plants state that retiree medical coverage will “continue during retirement” or “continue[ ] during retirement until ... death.” J.A. 434, 1076. However, both SPDs have language wherein Visteon retains its right to modify or terminate coverage. The second page of each SPD provides in part as follows:

Visteon Systems, LLC intends to continue the Plan as described in this handbook. However, the Company reserves the right to suspend, amend or terminate the Plan-or any of the coverages or features provided under the Plan-at any time and in any ma[nn]er to the extent permitted by law (subject to the collective bargaining requirements). As a result, this handbook is not a contract, nor is it a guarantee of your coverages.

J.A. 417, 1060 (with slight variations). Each SPD reiterates:

Visteon Systems, LLC intends to continue the Plan indefinitely. However, the Company reserves the right to suspend, modify or amend the benefits provided under the Plan, or even terminate the Plan or any of the benefits provided under the Plan.

However, the Plan is subject to the provisions of the current Collective Bargaining Agreements ² between the Plan Sponsor and [the unions]. As a result, this handbook is not a guarantee of your coverage.

J.A. 489, 1145 (with slight variations).

Visteon closed its Connersville plant in 2007 and its Bedford plant in 2008. Prior to each plant closing, the union and Visteon negotiated Closing Agreements that set forth the terms under which the plants would close. See J.A. 571-77, 1325-30. For the most part, these agreements do not refer to retiree benefits. However, the agreements do include a Waiver and Release, which provides in relevant part: “Visteon may in the future amend its benefit plans and make available different retirement, placement or separation benefits for which I may not be eligible. The Plant Closure Agreement does not limit or in any way modify the provisions of any benefit plan.” J.A. 575, 1328.

On May 28, 2009, Visteon filed a petition for Chapter 11 bankruptcy in the District of Delaware. See J.A. 12. Since filing the petition, Visteon has continued to operate its business as a debtor in possession, and is in the process of restructuring so that it can successfully emerge from bankruptcy. See J.A. 133.

On June 26, 2009, Visteon moved the bankruptcy court for permission to terminate all United States retiree benefit plans pursuant to 11 U.S.C. § 363(b)(1).³ See J.A. 50. Visteon's request affected approximately 8,000 of Visteon's present and former employees, their spouses, and their dependants. See J.A. 106. Several groups of retirees, including the 1,700 Connersville retirees and 400 Bedford retirees represented by the IUE-CWA, objected. See J.A. 111-14, 3572. They argued that Visteon could not terminate any retiree benefits during a Chapter 11 proceeding without first complying with the requirements of § 1114. See J.A. 350.

On December 10, 2009, the bankruptcy court granted Visteon's motion as to the vast majority of the retiree benefits, including those at issue in this appeal.⁴ See J.A. 3571. The court concluded that since Visteon has the right under non-bankruptcy law to terminate benefits unilaterally, § 1114 did not apply. See id. The court explained:

[The] Court finds that as a matter of applicable non-bankruptcy law, as well as the plain meaning of the controlling documents, the Debtors would have outside of bankruptcy the right to terminate these plans at will....

... The reason that the benefits can be terminable ... is that they are not vested. In making my ruling, I incorporate in toto Judge Drain's analysis in [ In re Delphi Corp., No. 05-44481, 2009 WL 637315 (Bankr.S.D.N.Y. Mar.10, 2009)], and I rely on that analysis as a support for my ruling.... I hold that the plain meaning [analysis] as applied by Judge Venter[ ] in [ In re Farmland Indus., Inc., 294 B.R. 903 (Bankr.W.D.Mo.2003),] ... is not persuasive ... [because it] would lead to an absurd result in that it would expand retiree rights beyond the scope of state law for no legitimate bankruptcy purpose. Under [ Butner v. United States, 440 U.S. 48, 54, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979)], which is based on constitutional principles, the statute cannot modify existing state law [absent] some specific bankruptcy reason and there is none here in connection with the issue of non-vested retiree benefits.

J.A. 3573-74. The bankruptcy court therefore evaluated Visteon's motion to terminate retiree benefits under § 363, and authorized the termination based on the court's conclusion that it was a reasonable exercise of business judgment. See J.A. 3571, 3581.

Even though Visteon could terminate its benefit payments immediately pursuant to the bankruptcy court's order, it remained obligated under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), 29 U.S.C. §§ 1161-68, to provide lifetime COBRA coverage to retirees whose benefits it discontinued during a Chapter 11 proceeding. Visteon consulted with its benefit administrators and determined that it would take several months to terminate the old plans and set up new COBRA plans. See J.A. 3688-92, 3844-45. Visteon therefore planned to delay termination of payments for retiree benefits until April 1, 2010. See J.A. 3844-45. After that date, retirees could continue their Visteon health coverage only by electing COBRA coverage, and paying the full cost of that coverage plus a two percent administrative fee. See, e.g., J.A. 3593.

On February 26, 2010, the union moved the bankruptcy court for a stay pending appeal of its order permitting the termination of benefits. See J.A. 3790-802. The bankruptcy court denied the motion. See J.A. 3829-34. Despite finding that some Medicare-ineligible retirees faced irreparable harm,⁵ it concluded that the union was unlikely to succeed on the merits on appeal, and therefore it could not meet the burden for obtaining preliminary injunctive relief. See id.

The union appealed the bankruptcy court's decision to the district court, and also moved that court for a stay of the bankruptcy court's order. The district court denied the appeal, and refused to issue a stay pending appeal. See J.A....