Federal appeals court overturns ruling allowing Visteon to terminate retiree health benefits

Ruling on Visteon retiree benefits overturned

WILMINGTON, Del. — Auto parts supplier Visteon Corp. cannot terminate its retirees’ health and life insurance benefits without following certain procedures under bankruptcy law, a federal appeals court ruled Tuesday.

In overturning two lower court decisions, a three-judge panel of the 3rd U.S. Circuit Court of Appeals in Philadelphia unanimously agreed with attorneys representing some 2,100 retirees from two Visteon manufacturing plants in Indiana that the company could not unilaterally terminate their benefits.

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 retirees of Visteon were, we think, deprived of fundamental protections and rights that Congress intended them to have, and now they’re going to get them,” Kennedy said.

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.

Other courts have interpreted the bankruptcy code as saying creditors can’t be given greater rights in a bankruptcy case than they had outside bankruptcy, but the appeals court cited the “unique nature” of retiree benefits in a bankruptcy proceeding.

The decision comes four months after a Delaware bankruptcy judge refused to halt implementation of his order allowing Visteon to terminate the benefits of hourly workers who retired from Visteon’s now-shuttered plants in Connersville and Bedford, Ind.

In a prepared statement, Visteon spokesman Jim Fisher said the company, based in Van Buren Township, Mich., was disappointed by the ruling.

“We are assessing this ruling and will determine an appropriate course of action. Once we do, we will communicate with affected retirees as quickly as possible,” the statement read.

IUE-CWA President Jim Clark said in a statement that the union will continue to press Visteon for a fair settlement that protects the retirees and rewards them for their decades of service to the company.

Kennedy, the lawyer for the retirees, said that under the bankruptcy code, Visteon must engage in fair negotiations with retirees before it eliminates their benefits, and that if no agreement is reached, the bankruptcy court must determine that any change is fair and equitable to all parties. Visteon also most show that any change in benefits is needed for the company to successfully emerge from Chapter 11 protection.

“Given the present state of Visteon, it’s very difficult for them to establish that they need to terminate retirees’ benefits for them to successfully reorganize,” Kennedy said. “We think the company is doing better and can well afford these benefits, which in our view they have promised people for decades.”

Visteon, a top supplier to and a former subsidiary of Ford Motor Co., argued at a hearing last year that the retiree benefits were one of its largest liabilities and posed a significant obstacle to a successful reorganization. The company claimed that the retiree health and life insurance subsidies constituted a liability of about $310 million.

After revisiting the issue at a hearing in March, 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. A somber Sontchi acknowledged the impact on retirees of his decision, which was later upheld by a federal district judge in Delaware, but said delaying implementation of his order while the retirees filed an appeal would simply be “further delay of the inevitable.”

A Visteon attorney also said at the March hearing that an appeal was bound to fail.

But the appeals court rejected Visteon’s argument that the provisions of the bankruptcy code upon which the retirees were relying amounted to a “hammer” being used against it.

“It is much more accurately characterized as a ‘microphone,’ intended to elevate the voices of those who would otherwise not be heard above the din of more powerful creditors carving up the pie of the bankruptcy estate,” wrote Chief Judge Theodore McKee.