(CN) – The 3rd Circuit blocked Visteon Corp. from terminating the health and life insurance benefits of about 2,100 retirees until the auto parts supplier complies with certain bankruptcy procedures.
The appellate panel in Philadelphia overturned two judges’ decisions allowing Visteon to unilaterally terminate the benefits of retirees from two plants in Indiana.
Visteon filed for bankruptcy in May 2009, after closing its plants in Connersville and Bedford. The closing agreements it negotiated with the union included a waiver stating that Visteon reserved the right to change or end its benefits.
Visteon cited this right when retirees objected to its decision to stop offering retiree benefits as it restructured through bankruptcy.
The retirees’ union argued that Visteon can’t modify or terminate any retiree benefits during a Chapter 11 bankruptcy, even if it could terminate those benefits outside bankruptcy.
In federal court, U.S. District Judge Michael Baylson acknowledged that the union’s claim “might seem legitimate based on a plain reading of the statute.” But he ruled that such an interpretation would result in retirees receiving “more protection from a company under bankruptcy than they would receive from a company outside of bankruptcy” – a “unique if not revolutionary” interpretation of bankruptcy code.
This May, Visteon stopped all payments for retiree benefits, leaving the majority of those ineligible for Medicare without health insurance.
The 3rd Circuit’s Chief Judge Theodore McKee said Visteon acted too quickly, without following the requirements under bankruptcy law.
“The trustee must attempt to reach an agreement with the retirees regarding modification of retiree benefits before it can ask the bankruptcy court to modify or terminate them,” McKee wrote.
The law is “unambiguous and clearly applies to any and all retiree benefits, including the ones at issue here,” the court concluded, reversing the lower court’s decision and remanding.