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Don’t Forget To File An Appeal If You Wish To Take Advantage Of One

In re Visteon Corp., Nos. 12-3352, 12-3353, 2014 WL 4244022 (3d Cir. Aug. 28, 2014)

In this Opinion, filed on August 28, 2014, the Third Circuit reaffirmed a general legal principle:  with limited exception, in order to reap the benefit of a favorable appeal, you must first file one.  Additionally, the Third Circuit reiterated the principle that “changes in the law after settlement do not affect the validity of the agreement and do not provide a legitimate basis for rescinding the settlement.”

Two unions, the UAW and IUE, represented retirees at the Visteon Corporation’s (“Visteon”) plants.  The UAW represented retirees at three plants, and the IUE at two.  When Visteon filed for bankruptcy, it closed all the plants except for the one known as the “North Penn plant.”  It also moved to terminate its retirees’ other post-employment benefits (“OPEB”) without complying with Bankruptcy Code section 1114.  UAW and IUE objected, but the Bankruptcy Court ruled that Visteon need not adhere to section 1114 and could terminate the OPEB unilaterally while in bankruptcy (the “OPEB Termination Order”).  In rendering this ruling, however, the Bankruptcy Court carved-out the North Penn plant retirees because the plant was still operating and a collective bargaining agreement governed employee and retiree benefits.  According to the Court, these distinctions rendered section 1114 applicable.  After the ruling, the UAW, on behalf of the North Penn retirees, negotiated a settlement agreement with Visteon to close the North Penn plant and to resolve all related disputes, including the termination of OPEB.  Meanwhile, the IUE, on behalf of the retirees it represented, appealed the Bankruptcy Court’s OPEB Termination Order.  UAW did not appeal.

The Delaware District Court affirmed the OPEB Termination Order, but the Third Circuit reversed (“Visteon I”), holding that section 1114 did, in fact, apply to Visteon’s OPEB termination.  As a result of Visteon I, the Bankruptcy Court restored all of the UAW and IUE retirees’ OPEB except for those of the North Penn plant retirees, whose OPEB terminations were governed by the settlement agreement.  Visteon appealed this global reinstatement, arguing that UAW (and its retirees) remained bound by the OPEB Termination Order because the UAW never appealed.  The UAW cross-appealed, arguing that the Bankruptcy Court improperly carved-out the North Penn retirees’ OPEB from the reinstatement order.

The Third Circuit ruled in favor of Visteon on both issues.  In doing so, the Court admitted that its previous ruling in Visteon I was broad.  Indeed, it directed the Bankruptcy Court to “order Visteon Corporation to take whatever action is necessary to immediately restore all terminated or modified benefits to their pretermination/modification levels.”  However, the order only mentioned the IUE and its retirees.  More importantly, as the Court explained, it is black letter law “that any party contesting an unfavorable order or judgment below must file an appeal.”  If it fails to do so, such party cannot benefit from future relief granted on appeal with respect to the disputed decision unless its interests are “inextricably intertwined” with the future disposition and it would be impossible not to grant it relief.  See United States v. Tabor Court Realty Corp., 943 F.2d 335, 344 (3d Cir. 1991).  According to the Third Circuit, the UAW did not fall into this limited exception and it was thus improper for the Bankruptcy Court to have assumed that the UAW (and its retirees) could benefit from the appeal.  Additionally, the Court held that the UAW could not use the Third Circuit’s reversal to modify the North Penn settlement agreement and gain reinstatement of OPEB benefits.  Just as not appealing was a calculated risk by UAW, so too was entering into a settlement agreement before the Bankruptcy Court’s OPEB Termination Order was finally adjudicated.  According to the Third Circuit, the settlement agreement was a comprehensive and negotiated contract that could not be put aside because of Visteon I and its subsequent change in the law.

Interestingly, Chief Judge McKee concurred with the majority’s ruling with respect to Visteon I’s effect on the North Penn settlement agreement, but dissented with the majority’s ruling with respect to the reinstatement of UAW’s OPEB.  In his dissent, Judge McKee acknowledged the concern for finality of judicial orders but noted that, as a result of the majority’s holding, UAW’s failure to appeal gave Visteon the authority to terminate OPEB in direct contravention of Bankruptcy Code section 1114 and the Third Circuit’s previous ruling that “any and all retiree benefits” be restored.  Simply put, in Visteon I, the Third Circuit held that Visteon did not comply with the law when it terminated retirees’ OPEB.  Allowing the continued termination of those benefits because of a failure to appeal would directly contravene explicit Congressional mandates and would “empower[] employers to do something that Congress has prohibited merely because of concerns for finality[.]”  Accordingly, Chief Judge McKee could not join in the majority’s judgment.