On July 13, 2010, the U.S. Court of Appeals for the Third Circuit held, in a landmark decision, that a plan sponsor which had the right to unilaterally terminate retiree benefits outside of bankruptcy could not exercise that same right during a bankruptcy proceeding. The case, IUE-CWA v. Visteon Corp. (In re Visteon Corp.), marks the first time that a Circuit Court of Appeals ruled against a bankrupt employer in its attempt to unilaterally terminate non-vested retiree welfare benefits.

A district court rejected the prudent investor rate theory and applied the Pension Benefit Guaranty Corporation (PBGC) discount rate to determine the amount of a PBGC termination liability claim. Wolverine, Procter & Schwartz, LLC v. Lynn F. Riley, 2010 WL 1236298 (D. Mass. 2010). This case demonstrates a recent trend among courts. In the 1990s and 2000s, several courts found that an unfunded benefit liability claim may be recalculated in bankruptcy using a "prudent investor rate" to determine the present value of plan liabilities.

In re Visteon Corp., No. 10-1944-cv, 2010 WL 2735715 (3d Cir. July 13, 2010), the Third Circuit held that Visteon Corporation (Visteon) could not terminate unvested retiree health and life insurance benefits during a Chapter 11 bankruptcy without seeking court approval pursuant to Bankruptcy Code § 1114, 11 U.S.C. § 1114. The Third Circuit’s decision departs from the rulings of many other federal courts, and is in tension, if not outright conflict, with the Second Circuit’s decision in LTV Steel Co. v. United Mine Workers (In re Chateaugay Corp.), 945 F.2d 1205 (2d Cir.

IUE-CWA v Visteon Corporation, 2010 WL 2735715 (3rd Cir July 13, 2010)

CASE SNAPSHOT

CENTRAL STATES SOUTHEAST AND SOUTHWEST AREAS PENSION FUND v. O'NEILL BROS. TRANSFER & STORAGE (August 31, 2010)

Once a company files a Chapter 11 bankruptcy petition (to sell its assets, reorganize or liquidate), Bankruptcy Code § 1114 sets forth a detailed procedure for the employer to follow to modify or terminate certain retiree benefits. Among other things, § 1114 imposes on the employer the burden of showing that the elimination or modification of benefits is necessary to permit reorganization.

On July 13, 2010, a three-judge panel of the United States Court of Appeals for the Third Circuit unanimously held that auto-parts supplier Visteon Corporation could not terminate health and life insurance benefits for approximately 2,100 retirees during its chapter 11 bankruptcy unless Visteon followed the specific requirements laid out in section 1114 of the Bankruptcy Code, even if Visteon would have had the unilateral right to terminate these benefits outside bankruptcy.1 The Court found that a debtor may terminate any retiree benefits in bankruptcy only if,inter alia, the debt

The Sixth Circuit continues to liberally define the "actual knowledge" required to trigger the 3-year ERISA statute of limitations and, in doing so, affirmed summary judgment in favor of the defendants in Brown v Owens Corning Investment Review (Case No. 09-3692).

When we last left off, Judge Peck (SDNY) was foiling Cyrus Select Opportunities’ efforts to oppose Ion Media’s chapter 11 plan, while in the Northern District of Texas, Judge Jernigan was putting the stops on Michigan Retirement Systems’ attempt to thwart Erickson Retirement Communities’ allocation of value to PNC Bank

COSTELLO v. GRUNDON (October 18, 2010)