Transforming a Non-Claim into a Claim: § 1114 and the Curious Case of in re Visteon
The American Bankruptcy Law Journal, Vol. 85, No. 1, 2011
36 Pages Posted: 13 Jun 2012
Date Written: 2011
This Article argues that the most important case concerning retiree medical benefits in bankruptcy has just been handed down by the United States Court of Appeals for the Third Circuit in the case of In re Visteon Corp. Fifty years from now, the section governing such benefits, § 1114, will likely be moot as employers today are not creating new retiree medical benefit programs, and those that still have them are phasing them out to the fullest extent possible. Yet the section remains relevant today because there are still thousands of retirees, mostly in manufacturing industries such as steel and auto, who continue to rely on the legacy of retiree benefits that were granted to them decades ago.
The significance of Visteon is that it is the first federal circuit court to address directly the most fundamental issue surrounding § 1114, namely, whether the special protections of that section apply in a case where the employer has contractually reserved a unilateral right to terminate the benefits outside bankruptcy. A shorter way to phrase the issue is whether § 1114 was intended by Congress to apply to non-vested retiree benefits. The other reason that the Visteon decision is so important is that the Third Circuit's conclusion that § 1114 was indeed meant to cover non-vested as well as vested retiree medical benefits is contrary to the majority of bankruptcy and district courts that have previously considered the question.
This Article analyzes the opinion in the Visteon case and raises some concerns with its analysis. In particular, the Article focuses on the two rationales that the Third Circuit relied on in reaching its conclusion: the plain-meaning rule statutory interpretation and the legislative history of § 1114. The Article concludes by describing some possible strategies that employers or creditors might use to avoid the effect of the Visteon holding in future cases involving retiree medical benefits in bankruptcy.
Keywords: bankruptcy, non-vested retiree benefits, retiree medical benefits
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