Appeals Court Rules Bankrupt Visteon Cannot Unilaterally Terminate Retiree Benefit

July 25th, 2010 by Reed Allmand

A three-judge panel of the 3rd U.S. Circuit Court of Appeals overturned two lower court decisions, and ruled that auto parts supplier Visteon Corp. cannot terminate its retirees’ health and life insurance benefits without following certain procedures under bankruptcy law. 

The court ordered that the benefits, which were terminated May 1, be reinstated immediately, and that any further attempts to modify them be subject to negotiations with the Industrial Division of the Communications Workers of America, or IUE-CWA, the union representing the retirees, said Tom Kennedy, an attorney who argued the appeal on behalf of the retirees.

The appeals court agreed that Congress, through the bankruptcy code, intended to restrict a debtor’s ability to modify or terminate retiree benefits during a Chapter 11 case, regardless of whether it could unilaterally terminate those benefits outside of bankruptcy.

Visteon must negotiate fairly with retirees before it can eliminate their benefits and if no agreement is reached, the bankruptcy court must be the one to determine if the proposed changes are fair and equitable to both parties in the Chapter 11 bankruptcy case.  Additionally, Visteon must prove that it cannot successfully emerge from Chapter 11 bankruptcy without terminating or reducing retiree benefits. The group of retirees challenging the termination of their benefits argue that Visteon is doing a lot better than they claim and that they can in fact afford to pay the retiree benefits.  U.S. Bankruptcy Judge Christopher Sontchi stood by his earlier determination that the retirees did not have vested rights in the benefits and that Visteon could terminate them unilaterally. He also declined to delay the implementation of the termination of those benefits pending an appeal saying that it would only delay the inevitable.