On Appeal from the United States District Court for the District of Delaware No. 10-cv-00091 District Judge: Judge Michael M. Baylson (Specially Presiding).
The opinion of the court was delivered by: McKEE, Chief Judge.
Before: McKEE, Chief Judge, and RENDELL and STAPLETON, Circuit Judges.
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.*fn1
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*fn2 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).*fn3 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.*fn4 See J.A. 3571. The court concluded that since Visteon has the right under nonbankruptcy 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 (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,*fn5 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.
Visteon 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. 3.1. The district court concluded that the bankruptcy court's finding that the benefits were not vested was not clearly erroneous. See J.A. 3.3. It also agreed with the bankruptcy court's conclusion that the protections afforded by § 1114 did not apply to retiree benefits that could be unilaterally terminated outside of bankruptcy. Although the court acknowledged that the union's argument to the contrary might "seem legitimate based on a plain reading of the statute," it nonetheless reasoned 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 the Bankruptcy Code by improving on the pre-petition, contractual rights of a third party constituent as a result of the filing of a bankruptcy case." J.A. 3.6.
The district court did, however, grant a limited onemonth stay so that the union could seek expedited appeal. The court acknowledged that the union's legal argument had some merit, as "neither the Supreme Court nor any circuit court has ruled on this issue," and its contrary reading of § 1114 was supported only by "the interpretation of § 1114 by several respected Bankruptcy Judges." J.A. 3.6-3.7. It also noted that "a strict application of the 'plain meaning' doctrine may warrant a fresh reading of this statute," but that "such an interpretation would still have to get over the hurdle that interpreting the statute [in that manner] results in the retirees getting more protection through a bankruptcy proceeding than they would absent bankruptcy." J.A. 3.7; see also J.A. 3932-34. During the one-month stay granted by the district court, Visteon was permitted to provide insurance solely through COBRA plans.*fn6 However, it was required to pay the April 2010 rather than through the COBRA plans it was poised to put into effect, could not be effectuated by the health insurance companies premiums of any Medicare-ineligible retirees who purchased insurance. See J.A. 1-3. This expedited appeal followed.*fn7
Effective May 1, 2010, Visteon stopped all payments for the retiree benefits at issue in this case, and the retirees were able to continue Visteon health insurance only through paying for COBRA coverage. The union represented at oral argument that the majority of the approximately 840 Medicare-ineligible retirees are now without health insurance, as the cost of purchasing coverage through COBRA or other private insurance providers is prohibitive.*fn8
II. Jurisdiction and Standard of Review
The bankruptcy court had jurisdiction pursuant to 28 U.S.C. §§ 157 and 1334. The district court had jurisdiction pursuant to 28 U.S.C. §§ 158(a) and 1334. We have jurisdiction pursuant to 28 U.S.C. § 158(d).
Our review of the district court's decision "effectively amounts to review of the bankruptcy court's opinion in the first instance." In re Sharon Steel Corp., 871 F.2d 1217, 1222 (3d Cir. 1989). We review the bankruptcy court's legal conclusions de novo. See Ferrara & Hantman v. Alvarez (In re Engel), 124 F.3d 567, 571 (3d Cir. 1997).
III. Chapter 11 Bankruptcy and the Protections of § 1114
As a general rule, "Chapter 11 of the Bankruptcy Code strikes a balance between two principal interests: facilitating the reorganization and rehabilitation of the debtor as an economically viable entity, and protecting creditors' interests by maximizing the value of the bankruptcy estate." In re Philadelphia Newspapers, LLC, 599 F.3d 298, 303 (3d Cir. 2010). Section 1114, however, factors another interest into the balancing equation. As we have explained, § 1114 "was enacted to protect the interests of retirees of chapter 11 debtors." Gen. DataComm Indus., Inc. v. Arcara (In re Gen. DataComm Indus., Inc.), 407 F.3d 616, 620 (3d Cir. 2005) (quoting 7 Collier on Bankruptcy, ¶ 1114.02 (Alan N. Resnick & Henry J. Sommer eds., 15th ed. 2002)).
Section 1114 was enacted, along with its counterpart § 1129(a)(13), as the primary substantive components 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.*fn9 See S. Rep. No. 100-119 (1987), reprinted in 1988 U.S.C.C.A.N. 683, 683 ("The bill... addresses situations with respect to retiree insurance benefits, such as occurred last year when LTV Corporation, after filing a Chapter 11 Bankruptcy petition, immediately terminated the health and life insurance benefits of approximately 78,000 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. For the purposes of both sections, "retiree benefits" are defined as:
payments to any entity or person for the purpose of providing or reimbursing payments for retired employees and their spouses and dependants, for medical, surgical, or hospital care benefits, or benefits in the event of sickness, accident, disability, or death under any plan, fund, or program (through the purchase of insurance or otherwise) maintained or established in whole or in part by the debtor prior to filing a petition commencing a case under this title.
Section 1114(e) provides in relevant part that: "[n]otwithstanding any other provision of this title, the [trustee*fn10] shall timely pay and shall not modify any retiree benefits" unless the court, on the motion of the trustee or authorized representative of the retirees,*fn11 orders, or the trustee and the authorized representative agree to, the modification of such benefits. 11 U.S.C. § 1114(e).
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.*fn12 Section 1114(f) requires that the trustee "make a proposal to the authorized representative of the retirees... which provides for those necessary modifications in the retiree benefits that are necessary to permit the reorganization of the debtor and assures that all creditors, the debtor and all of the affected parties are treated fairly and equitably." 11 U.S.C. § 1114(f)(1)(A). The trustee must also provide the authorized representative with information about the company's financial situation to allow for informed evaluation of the proposal. See 11 U.S.C. § 1114(f)(1)(B). After making this proposal, the trustee must meet with the authorized representative to "confer in good faith in attempting to reach mutually satisfactory modifications of such retiree benefits." 11 U.S.C. § 1114(f)(2).
The court will grant a motion to modify retiree benefits only if it finds that the trustee has made a proposal satisfying these requirements, the authorized representative has refused to accept it without "good cause," and the "modification is necessary to permit the reorganization of the debtor and assures that all creditors, the debtor, and all of the affected parties are treated fairly and equitably, and is clearly favored by the balance of the equities."*fn13 11 U.S.C. § 1114(g). Even after the court proposed modifications pending the ruling of the court on such permits a modification, however, the authorized representative may still move for an increase in benefits, which the court should grant if consistent with the § 1114(g) standard. See id. Section 1114(e) provides additional protection for retiree benefits by giving them priority they would not otherwise have. That provision states: "[a]ny payment for retiree benefits required to be made" during a Chapter 11 proceeding "has the status of an allowed administrative expense" under 11 U.S.C. § 503, rather than the general unsecured status that would otherwise apply. 11 U.S.C. § 1114(e)(2). Benefits paid during the proceeding do not reduce the retirees' general unsecured claim "for any benefits which remain unpaid... [whether] based upon... a right to future unpaid benefits or from any benefits not paid as a result of modifications allowed pursuant to this section." 11 U.S.C. § 1114(i).
Congress focused the protections of § 1114 on retirees who would otherwise be without needed benefits. Thus, Congress specified that § 1114 does not apply to "any retiree, or the spouse or dependents of such retiree, if such retiree's gross income for the twelve months preceding the filing of the bankruptcy petition equals or exceeds $250,000," unless that retiree is able to show that s/he cannot otherwise obtain comparable coverage. 11 U.S.C. § 1114(m).
As already noted, the RBBPA also amended § 1129(a), the section of Chapter 11 which sets forth the requirements a reorganization plan must satisfy in order for the bankruptcy court to approve the reorganization and allow the debtor to emerge from bankruptcy. The RBBPA added the requirement that:
The plan provides for the continuation after its effective date of payment of all retiree benefits, as that term is defined in section 1114 of this title, at the level established pursuant to subsection (e)(1)(B) or (g) of section 1114 of this title, at any time prior to confirmation of the plan, for the duration of the period ...