IUE-CWA v. Visteon Corp. (In Re Visteon Corp.) , 612 F.3d 210 ( 2010 )

PRECEDENTIAL
UNITED STATES COURT OF APPEALS FOR THE
THIRD CIRCUIT
_____________
No. 10-1944
_____________
IN RE VISTEON CORPORATION, ET AL.
IUE-CWA, THE INDUSTRIAL DIVISION OF THE
COMMUNICATIONS WORKERS OF AMERICA, AFL-
CIO, CLC,
Appellant,
v.
VISTEON CORPORATION, DEBTORS AND DEBTORS
IN POSSESSION; and THE OFFICIAL COMMITTEE OF
UNSECURED CREDITORS OF VISTEON
CORPORATION,
Appellees.
On Appeal from the United States District Court
for the District of Delaware
No. 10-cv-00091
District Judge: Judge Michael M. Baylson (Specially
1
Presiding)
Argued May 28, 2010
Before: McKEE, Chief Judge, and RENDELL and
STAPLETON, Circuit Judges.
(Opinion filed July 13, 2010)
Thomas M. Kennedy, Esq. (Argued)
Susan M. Jennick, Esq.
Kennedy, Jennik & Murray
113 University Place
7th Floor
New York, NY 10003
Attorney for Plaintiff -Appellant
Susan E.Kaufman, Esq.
Heiman, Gouge & Kaufman
800 King Street, Suite 303
Wilmington, DE 19801
Attorney for Plaintiff-Appellant
Steven D. McCormick, Esq. (Argued)
Andrew B. Bloomer, Esq.
Patrick M. Bryan, Esq.
Kirkland & Ellis
300 North LaSalle Street
Suite 2400
Chicago, IL 60654
2
Laura D. Jones. Esq.
James E. O’Neill, III, Esq.
Pachulski Stank Ziehl & Jones
919 North Market Street
P.O. Box 8705, 17th Floor
Wilmington, DE 19801
Attorneys for Appellee Visteon Corporation
Robert J. Stark, Esq. (Argued)
Howard L. Siegel, Esq.
Brown Rudnick
7 Times Square
47th Floor
New York, NY 10036
William P. Bowden, Esq.
Gregory A. Taylor, Esq.
Ashby & Geddes
500 Delaware Avenue
P.O. Box 1150, 8th Floor
Wilmington, DE 19899
Attorneys Appellee Official Committee of Unsecured
Creditors
OPINION
McKEE, Chief Judge.
The Industrial Division of the Communications Workers
of America (“IUE-CWA” or “the union”), as the representative
3
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
4
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.1
I. Factual and Procedural History
1
The union also argues that the bankruptcy court erred in
finding that Visteon has the right to unilaterally terminate these
benefits under the relevant plan documents and collective
bargaining agreements. Because we conclude that § 1114 applies
regardless of whether Visteon has such a right outside of
bankruptcy, we need not reach this question. For the purposes of
our opinion, we assume, arguendo, that Visteon could unilaterally
terminate these benefits if it were not in a Chapter 11 bankruptcy
proceeding.
5
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
6
“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
7
the current Collective Bargaining Agreements2
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
2
The last CBAs at each plant included commitments by
Visteon to provide retiree benefits. See J.A. 691, 1355. These
express written commitments were not continued after the plants
were closed.
8
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).3 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.
3
Section 363(b)(1) provides that the bankruptcy trustee
“after notice and a hearing, may use, sell, or lease, other than in the
ordinary course of business, property of the estate . . . .” 11 U.S.C.
§ 363(b)(1). This provision is in contrast to transactions that are in
the ordinary course of business under subsection (c)(1) of § 363,
which do not require notice and a hearing. See 11 U.S.C. §
363(c)(1).
9
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.4 See J.A. 3571. The
court concluded that since Visteon has the right under non-
bankruptcy law to terminate benefits unilaterally, § 1114 did not
apply. See id. The court explained:
4
The bankruptcy court granted Visteon’s motion to
terminate all retiree benefits, except for those promised or
provided to present and former employees at Visteon’s North Penn
plant, pursuant to a CBA that had not yet expired. See J.A. 3581-
82. The court made clear, however, that once the CBA did expire,
Visteon could terminate those benefits as well. See J.A. 3582.
10
[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
11
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.
12
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,5 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
5
As of August 2009, approximately forty percent of the
Connersville and Bedford retirees were not yet eligible for
Medicare. See J.A. 3690.
13
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 one-
month stay so that the union could seek expedited appeal. The
14
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.6 However, it was required to pay the April 2010
6
A Visteon benefits administrator submitted a declaration
to the bankruptcy court explaining that a stay which required
Visteon to provide insurance through its original benefit plans,
15
premiums of any Medicare-ineligible retirees who purchased
insurance. See J.A. 1-3. This expedited appeal followed.7
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.8
rather than through the COBRA plans it was poised to put into
effect, could not be effectuated by the health insurance companies
for approximately three months, and during that time, no one,
including those retirees who had elected COBRA coverage, would
be covered. See J.A. 3688-95.
7
On April 13, 2010, we granted the union’s motion to
expedite the appeal, but denied the motion to continue the stay.
The stay granted by the district court expired April 30, 2010.
8
The cost of COBRA coverage for those retirees who
submitted declarations to the bankruptcy court ranges from
16
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
$670.85 to $2,012.54 a month, constituting twenty-three to eighty-
six percent of the retirees’ monthly incomes. See J.A. 3656-87.
Many of these retirees and their family members suffer from
extremely serious medical conditions, including cancer, diabetes,
heart disease, muscular dystrophy, fibromyalgia, chronic
obstructive pulmonary disease, and schizophrenia. See id.
17
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[1] (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
18
(“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.9 See S. Rep. No. 100-119 (1987),
reprinted in 1988 U.S.C.C.A.N. 683, 683 (“The bill . . .
9
Congress enacted and twice renewed stop-gap legislation
to ensure that LTV continued to pay its retiree benefits while
Congress debated the problem. See Pub. L. No. 99-591 tit. VI §
608(a) (“Notwithstanding any provision of chapter 11 of title 11,
United States Code, the trustee shall pay benefits until May 15,
1987 to retired former employees under a plan, fund, or program
maintained or established by the debtor prior to filing a petition
(through the purchase of insurance or otherwise) for the purpose of
providing medical, surgical, or hospital care benefits, or benefits in
the event of sickness, accident, disability, or death.”); Pub. L. No.
100-41 (extending requirement to pay benefits to September 15,
1987); Pub. L. No. 100-99 (extending requirement to pay benefits
to October 15, 1987). Finally, in 1988, it enacted the RBBPA,
which itself contained an interim measure extending the stop-gap
protections to certain cases already proceeding in bankruptcy. The
rest of the RBBPA, codified at 11 U.S.C. § 1114 and 11 U.S.C. §
1129(a)(13), applies to bankruptcy proceedings commenced after
its enactment.
19
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.
20
11 U.S.C. § 1114(a).
Section 1114(e) provides in relevant part that:
“[n]otwithstanding any other provision of this title, the
[trustee10] 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,11 orders, or the trustee
and the authorized representative agree to, the modification of
such benefits. 11 U.S.C. § 1114(e).
10
A trustee is defined for the purposes of § 1114 to include
a debtor in possession, and therefore includes Visteon here. See 11
U.S.C. § 1114(e)(1).
11
“A labor organization shall be . . . the authorized
representative of those persons receiving any retiree benefits
covered by any collective bargaining agreement to which that
labor organization is a signatory,” unless the labor organization
declines to serve that role, or the court “determines that different
representation of such persons is appropriate.” 11 U.S.C. §
1114(c)(1). “[A] committee of retired employees . . . [shall] serve
as the authorized representative . . . of those persons receiving any
retiree benefits not covered by a collective bargaining agreement”
if the debtor seeks “to modify or not pay the retiree benefits or if
the court otherwise determines that it is appropriate.” 11 U.S.C. §
1114(d).
21
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.12 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
12
During these negotiations, however, the court may grant
interim modifications in retiree benefits “if essential to the
continuation of the debtor’s business, or in order to avoid
irreparable damage to the estate.” 11 U.S.C. § 1114(h)(1).
22
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.”13 11 U.S.C. § 1114(g). Even after the court
13
Upon the filing of a motion for the modification of
benefits, the court must, with certain limited exceptions, hold a
hearing within fourteen days. 11 U.S.C. § 1114(k)(1). The court
must rule on the motion, again with certain exceptions, within
ninety days of the commencement of the hearing. 11 U.S.C. §
1114(k)(2). “If the court does not rule on such application within
ninety days after the date of the commencement of the hearing, or
within such additional time as the trustee and the authorized
representative may agree to, the trustee may implement the
23
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
proposed modifications pending the ruling of the court on such
application.” Id.24
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
25
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 the debtor has obligated
itself to provide such benefits.
11 U.S.C. § 1129(a)(13).
IV. Discussion
As explained at the outset, this appeal requires that we
decide whether § 1114 limits a debtor’s ability to terminate
during bankruptcy those retiree benefits that it could, consistent
with plan documents, collective bargaining obligations, and the
prescriptions of the Employee Retirement Income Security Act
of 1974 (“ERISA”), 29 U.S.C. §§ 1001-461, terminate
unilaterally outside of bankruptcy.14 The union argues that the
14
As we will discuss in further detail below, ERISA does
not require vesting of welfare benefits, such as retiree health and
life insurance, and an employer is generally free to unilaterally
terminate them at any time and for any (or no) reason, unless it
contracts away that right. See, e.g., In re Lucent Death Benefits
ERISA Litig., 541 F.3d 250, 256 (3d Cir. 2008). Accordingly,
26
plain language of § 1114 applies to all retiree benefits, whether
or not the debtor could terminate those benefits outside of
bankruptcy pursuant to language in the applicable plan
documents reserving that right. Appellees Visteon and the
Official Committee of Unsecured Creditors (“Unsecured
Creditors”) counter by relying primarily on the majority view of
courts that have addressed this issue. Like the courts in those
cases, Appellees contend that restricting a debtor from
terminating during bankruptcy those retiree benefits that it could
otherwise terminate at will is absurd, and courts must conclude
that the plain language of a statute does not reflect congressional
outside of the bankruptcy context, there are only two
circumstances in which an employer cannot unilaterally terminate
benefits: first, if the employer has promised to continue providing
the benefits for life, i.e., if the employer has agreed that the
benefits will vest; or, second, even if the benefits are not vested, if
there is a current CBA or other employment agreement in place,
requiring payment of those benefits during the life of that
agreement.
27
intent if it produces an absurd result.
We hold that § 1114 is unambiguous and clearly applies
to any and all retiree benefits, including the ones at issue here.
Moreover, despite arguments to the contrary, the plain language
of § 1114 produces a result which is neither at odds with
legislative intent, nor absurd. Accordingly, disregarding the
text of that statute is tantamount to a judicial repeal of the very
protections Congress intended to afford in these circumstances.
We must, therefore, give effect to the statute as written. See
Lamie v. United States Tr., 540 U.S. 526, 534 (2004) (“[W]hen
the statute’s language is plain, the sole function of the courts –
at least where the disposition required by the test is not absurd
– is to enforce it according to its terms.”) (internal quotation
marks omitted).
We recognize that the majority of bankruptcy and district
courts that have addressed this issue have concluded that § 1114
28
does not limit a debtor’s ability to terminate benefits during
bankruptcy when it has reserved the right to do so in the
applicable plan documents. See, e.g., Retired W. Union
Employees Ass’n v. New Valley Corp. (In re New Valley Corp.),
No. 92-4884, 1993 WL 818245 (D. N.J. Jan. 28, 1993); In re
Delphi Corp., No. 05-44481, 2009 WL 637315 (Bankr.
S.D.N.Y. Mar. 10, 2009); In re N. Am. Royalties, Inc., 276 B.R.
860 (Bankr. E.D. Tenn. 2002); In re Doskocil Cos., 130 B.R.
870 (Bankr. D. Kan. 1991). But see Retailers Serv. Corp. v.
Employees’ Comm. of Ames Dep’t Store, Inc. (In re Ames Dep’t
Stores, Inc.), Nos. 92 Civ. 6145-46, 1992 WL 373492 (S.D.N.Y.
Nov. 30, 1992); In re Farmland Indus., Inc., 294 B.R. 903(Bankr. W.D. Mo. 2003).
We also realize that our conclusion appears to be in
tension with the decision of the Court of Appeals for the Second
Circuit in LTV Steel Co. v. United Mine Workers (In re
29
Chateaugay Corp.), 945 F.2d 1205 (2d Cir. 1991). There, the
court was confronted with the related, but different, issue of §
1114’s applicability to benefits provided pursuant to a CBA that
expires while the debtor is in Chapter 11 proceedings.
We are convinced that in reaching these contrary
conclusions as to the scope of § 1114, these courts mistakenly
relied on their own views about sensible policy, rather than on
the congressional policy choice reflected in the unambiguous
language of the statute.
A. Plain Language
As in all cases of statutory construction, our analysis of
§ 1114 begins with the statute’s plain language. See, e.g.,
Hourly Employees/Retirees of Debtor v. Erie Forge & Steel, Inc.
(In re Erie Forge & Steel), 418 F.3d 270, 276 (3d Cir. 2005)
(construing “authorized representative” provision of § 1114 in
accordance with its plain language). The words of a statute are
30
not to be lightly jettisoned by courts looking to impose their own
logic on a statutory scheme. See United States v. Terlingo, 327
F.3d 216, 221 (3d Cir. 2003) (Courts may look behind a statute
only when the plain meaning produces “a result that is not just
unwise but is clearly absurd.”) (internal quotation marks
omitted). When statutory language is plain and unambiguous,
“the sole function of the courts . . . is to enforce it according to
its terms.” Lamie, 540 U.S. at 534 (internal quotation marks
omitted). “[C]ourts must presume that a legislature says in a
statute what it means and means in a statute what it says there.”
Conn. Nat’l Bank v. Germain, 503 U.S. 249, 253-54 (1992). It
is for Congress, not the courts, to enact legislation. When courts
disregard the language Congress has used in an unambiguous
statute, they amend or repeal that which Congress enacted into
law. Such a failure to defer to the clearly expressed statutory
language of Congress runs contrary to the bedrock principles of
31
our democratic society. See Lamie, 540 U.S. at 538 (“Our
unwillingness to soften the import of Congress’ chosen words
. . . results from ‘deference to the supremacy of the
Legislature.’”) (quoting United States v. Locke, 471 U.S. 84, 95
(1985)).
As discussed above, § 1114(e)(1) plainly states:
“[n]otwithstanding any other provision of this title, the [trustee]
shall timely pay and shall not modify any retiree benefits,”
except through compliance with the procedures set forth therein.
11 U.S.C. § 1114(e)(1) (emphasis added). “Retiree benefits” are
defined, in turn, as “payments to any entity or person for [certain
select purposes] under any plan, fund, or program . . .
maintained or established in whole or in part by the debtor prior
to filing a petition commencing a case under this title.” 11
U.S.C. § 1114(a) (emphasis added). With the exception of
subsection (m), which specifies that § 1114 does not apply to
32
high-income retirees able to obtain comparable benefits, § 1114
contains no limitation or restriction.
Section 1114 could hardly be clearer. It restricts a
debtor’s ability to modify any payments to any entity or person
under any plan, fund, or program in existence when the debtor
files for Chapter 11 bankruptcy, and it does so notwithstanding
any other provision of the bankruptcy code. There is therefore
no ambiguity as to whether § 1114 applies here. Congress did
not restrict the application of § 1114 to those benefits that the
debtor was otherwise compelled to provide. Benefits that the
debtor could have terminated outside of bankruptcy, but which
it was nonetheless providing at the time of its Chapter 11 filing,
are plainly included in the phrase, “payments to any entity or
person . . . under any plan, fund, or program.”
Congress took care to specifically exclude some benefits
from the protective umbrella of § 1114. The protections
33
established therein do not extend to benefits provided for
purposes other than health, accident, disability, or death; or to
benefits provided to high-income retirees able to obtain
comparable coverage; or to benefits contemplated, but not
maintained or established, prior to the debtor’s filing for
bankruptcy. However, Congress did not limit § 1114’s
otherwise broad scope based on whether or not the debtor
reserved a right to terminate in its plan. See In re Farmland
Indus., Inc., 294 B.R. at 916-17 (“On its face, the language of
the statute is clear. . . . There is nothing in the language of the
statute to suggest that Congress intended to allow the
termination of retiree benefits in those instances where the
debtor has the right to unilaterally terminate those benefits under
the language of the plan or program at issue.”).
Nevertheless, the Unsecured Creditors argue that § 1114
is ambiguous because it does not specifically address whether
34
benefits which could be unilaterally terminated outside of
bankruptcy are “retiree benefits.” However, that is not an
ambiguity. Language is ambiguous only if it is “reasonably
susceptible of different interpretations.” Dobrek v. Phelan, 419
F.3d 259, 264 (3d Cir. 2005) (internal quotation marks omitted).
It is impossible to read the plain language of § 1114 as
excluding benefits which are terminable outside of bankruptcy
because, as we have explained, they are plainly “payments to
any entity or person . . . under any plan, fund, or program.”
Furthermore, a statute is not ambiguous simply because
it is broad. “In employing intentionally broad language,
Congress avoids the necessity of spelling out in advance every
contingency to which a statute could apply.” In re Philadelphia
Newspapers, 599 F.3d at 310. By using the word “any” three
separate times, Congress ensured that the statute would apply to
all benefits, absent the few exceptions directly addressed,
35
without its having to itemize that entire universe of benefits.
We are, therefore, unpersuaded by the suggestion that failure to
specifically address benefits that could be unilaterally
terminated outside of bankruptcy somehow breathes ambiguity
into the word “any.” The breadth of the statute’s language
requires that it be universally applied absent the few exceptions
included in the text; it does not create a license to disregard the
statute’s plain language.
Visteon relies upon In re Chateaugay Corp. in arguing
that the phrase “under any plan, fund, or program” makes §
1114 ambiguous in these circumstances, because it compels
judicial consideration of the plan under which benefits are
provided. Otherwise, according to Visteon, it would be
impossible to determine which benefits, if any, are due. The
court in Chateaugay addressed the distinct but related issue of
36
whether the RBBPA’s interim measure15 required a debtor to
continue paying retiree benefits during bankruptcy even after
expiration of the applicable CBA. The court concluded that the
debtor was free to terminate benefits without complying with §
1114. It reasoned:
The Act expressly states that the trustee in
bankruptcy . . . must continue to “pay benefits to
retired former employees under a plan, fund, or
program maintained or established by the debtor
prior to filing a petition [for bankruptcy].” Thus,
we must analyze the “plan, fund, or program
maintained or established” by LTV before it filed
15
As discussed above, supra note 9, because those portions
of the RBBPA codified at § 1114 and § 1129(a)(13) were
applicable only to bankruptcy proceedings initiated after the
statute’s enactment, the RBBPA also included an interim measure
extending previously enacted stop-gap protections to ongoing
bankruptcy proceedings. We note that although the protections
provided by the interim measure were similar to those now
provided by § 1114, its plain language was less adamant. The
interim measure provided: “the trustee shall pay benefits to retired
former employees under a plan, fund, or program maintained or
established by the debtor prior to filing a petition” during the
bankruptcy proceeding and until a plan is confirmed, unless
modification is agreed to by the parties or ordered by the court.
Pub. L. No. 100-334, § 3 (amending Pub. L. No. 99-591).
37
for bankruptcy in order to determine the trustee’s
obligation to LTV’s retired former employees.
945 F.2d at 1207. Since the debtor there was not obligated to
continue paying benefits upon expiration of the CBA, the court
reasoned that no further payments were necessary.
However, as the dissent in Chateaugay pointed out, the
Second Circuit majority’s analysis failed to remain faithful to
the plain language of the provision the court was interpreting.
The majority concluded that the statute only mandated
continuation of payments the debtor was required to make under
a plan, as opposed to simply payments being made under a
plan. This is not what the statute said. Congress did not use the
word “required,” nor did it use the word “obligations.” Rather,
as we have explained, Congress mandated that the debtor
continue to pay benefits “under a plan, fund, or program
maintained or established by the debtor prior to filing a
38
petition.” The expiration of the agreement to provide benefits
did not alter the fact that those benefits were provided “under”
a plan that was in effect when the petition was filed.
Interpreting this language in light of the legislative history, the
Chateaugay dissent concluded that the measure required
continuation of “all retiree health benefits . . . in effect
immediately prior to bankruptcy,” including those retiree
benefits provided pursuant to a CBA that expires during the
course of the bankruptcy proceeding. 945 F.2d at 1213.
To the extent that Chateaugay is relevant to our analysis,
we find Judge Restani’s cogent and well-reasoned dissent more
persuasive, and far more faithful to the statutory text than the
analysis of that court’s majority. However, the issue before the
court in Chateaugay differed from the one before us, and
whatever the merits of Visteon’s argument in that context, it
39
plainly fails here.16
Given the importance of the text, it is worth reiterating
that § 1114(e)(1) requires that a trustee “shall timely pay and
shall not modify any retiree benefits.” 11 U.S.C. § 1114(e)(1).
“Retiree benefits” are defined as “payments to any entity or
person . . . under any plan, fund, or program . . . maintained or
established in whole or in part by the debtor prior to filing a
petition.” 11 U.S.C. § 1114(a). Payments made during
bankruptcy under a plan that is terminable at will are
unambiguously “retiree benefits” under this definition. The fact
that the debtor could have unilaterally stopped the payments had
16
Notably, the dissent in Chateaugay interpreted the
district court as having agreed that the RBBPA’s interim measure
would apply to benefits terminable at will, even though it would
not apply to benefits under an expired CBA. See 945 F.2d at 1211(“The district court decided, in essence, that although the Act
applies to health benefits that are terminable at will, it does not
apply to health benefits that are provided pursuant to a contract
obligation which is interpreted to have expired.”).
40
it not been in Chapter 11 is therefore irrelevant. Once a
bankruptcy petition is filed, § 1114(e) takes effect, and the
trustee must “timely pay and . . . not modify any retiree
benefits” except through the § 1114 procedure.17 Benefit
payments pursuant to a terminable at will plan in effect when the
petition is filed thus continue to be for the pendency of the
proceeding “under any plan, fund, or program.”
It is also argued that § 1114 becomes ambiguous when
read in conjunction with its counterpart § 1129(a)(13). As we
have noted, the latter provision was also enacted as part of the
RBBPA. It is a “cardinal rule” of statutory interpretation that “a
17
Visteon argues that the statute as construed this way is
nonsensical because it would prompt any rational soon-to-be
debtor to terminate retiree benefits on the eve of bankruptcy.
However, as we will explain, Congress anticipated that “escape
hatch” and closed it with its 2005 addition to § 1114 of subsection
(l). That subsection prohibits an insolvent debtor from terminating
retiree benefits in the six months prior to filing for bankruptcy.
See 11 U.S.C. § 1114(l).
41
statute is to be read as a whole.” Leckey v. Stefano, 501 F.3d
212, 220 (3d Cir. 2007) (internal quotation marks omitted).
Reading § 1114 in conjunction with § 1129(a)(13), however,
merely reinforces our conclusion that § 1114 limits Visteon’s
ability to modify or terminate any retiree benefits.
Section 1129(a)(13) specifies that in order to emerge
from bankruptcy, the debtor’s reorganization plan must provide
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 the
debtor has obligated itself to provide such
benefits.
11 U.S.C. § 1129(a)(13). Ambiguity is purportedly ushered in
through the phrase, “for the duration of the period the debtor has
obligated itself to provide such benefits.” As we have
42
explained, § 1114 contains no limitation based on the debtor’s
obligation to provide benefits, yet § 1129(a)(13) clearly does.
Courts, assuming that Congress intended the two provisions to
be identical in scope, have accordingly found ambiguity when
considering them together. In In re New Valley Corp., for
example, the court acknowledged that “the language of section
1114, particularly the phrase ‘any retiree benefits’ appears to
embrace all retiree benefit plans in its modification procedures.”
1993 WL 818245, at *4. However, because it read §
1129(a)(13) as “appear[ing] to limit the application of section
1114 to retiree benefits which the debtor has ‘obligated itself’ to
pay, presumably pursuant to prior contractual agreement,” id.,
the court concluded that the “statutory scheme [was] not clear,”
id., at *3. It looked beyond the plain language of the statute to
ascertain the meaning of § 1114.
The union advocates a quite different interpretation of §
43
1129(a)(13), which it contends avoids creating ambiguity in §
1114. It posits that the clause, “for the duration of the period the
debtor has obligated itself to provide such benefits,” refers
solely to those obligations that a debtor takes on during the §
1114 process, and not to any extra-bankruptcy obligations.
According to the union, § 1129(a)(13):
does not come into play until the § 1114 process
has been completed and a Chapter 11 debtor has
obligated itself to continue retiree benefits for
some period of time in the course of a § 1114
process. Section 1129[(a)](13) merely ensures
that retirees who exit the § 1114 process having
secured a promise from the debtor that their
retiree benefits will continue for a period of time
do in fact receive the benefit of their bargain in
the Chapter 11 Plan upon its confirmation.
Appellant’s Br. 31-32.
Although we agree that § 1129(a)(13) does not create
ambiguity in the statutory scheme, we are not persuaded by the
union’s interpretation of the provision for two reasons. First, the
44
syntax of the section is inconsistent with the union’s argument
that § 1129(a)(13) obligations arise solely from § 1114. Section
1129(a)(13) requires the continuation of the payment of retiree
benefits, “at the level established [through the § 1114 process],
for the duration of the period the debtor has obligated itself to
provide such benefits.” 11 U.S.C. § 1129(a)(13). The
continuation of payments is accordingly to be in accordance
with two separate clauses. The first, “at the level established
[through the § 1114 process]” clearly states that the level of
benefits is the level agreed upon, or ordered by the court,
pursuant to § 1114. The second, “for the duration of the period
the debtor has obligated itself to provide such benefits,” contains
no such reference to § 1114. Had Congress intended to refer to
a “duration” or “obligation” arising from the § 1114 process, it
would have said so. It would have required the continuation of
retiree benefits “at the level, and for the duration, established”
45
pursuant to § 1114.
Secondly, the union’s reading is incompatible with how
§ 1114 operates in practice. Section 1114 permits modification
of retiree benefits either by agreement between the debtor and
the authorized representative, or, if agreement cannot be
reached, through court order. In those instances in which
agreement is reached, any duration agreed upon could be
described as “the duration of the period the debtor has obligated
itself to provide such benefits.” However, where the court has
ordered modification, it makes no sense to refer to the court-
ordered duration as something to which the debtor has
“obligated itself.”
We think “the duration of the period the debtor has
obligated itself to provide such benefits” plainly encompasses
any durational obligations, including those arising outside of the
bankruptcy context. Of course, such obligations could be
46
modified by agreement during the § 1114 process. Cf. In re N.
Am. Royalties, Inc., 276 B.R. at 867 (“Section 1129(a)(13)
requires the plan to provide for continued payment of retiree
benefits according to the pre-chapter 11 contract or the
modifications made under § 1114.”). However, the § 1114
process may not yield agreement on durational obligations,
either because no agreement is reached at all and modification
is court-ordered, or because the agreement reached addresses
only level of benefits and not duration. In such cases, the sole
source of durational obligations is the underlying contractual
agreements, and if the debtor has no obligations under those
agreements, as is the case here, § 1129(a)(13) does not require
continuation of benefit payments upon the debtor’s emergence
from bankruptcy.
Contrary to the court’s reasoning in In re New Valley
Corp., however, we do not believe that Congress intended the
47
plain language of § 1129(a)(13) to limit the reach or operation
of § 1114. Rather, the difference in the plain language of these
two provisions compels the opposite conclusion.
A “fundamental canon of statutory construction” is that
where a section of a statute does not include a specific term or
phrase used elsewhere in the statute, “the drafters did not wish
such a requirement to apply.” United States v. Mobley, 956 F.2d
450, 452-53 (3d Cir. 1992); see also BFP v. Resolution Trust
Corp., 511 U.S. 531, 537 (1994) (“[I]t is generally presumed
that Congress acts intentionally and purposefully when it
includes particular language in one section of a statute but omits
it in another.”) (alteration in original) (internal quotation marks
omitted). By including “for the duration of the period the debtor
has obligated itself to provide such benefits” in § 1129(a)(13),
Congress requires debtors emerging from bankruptcy to
continue to provide benefits only if they are otherwise obligated
48
to. So long as they do not take on new durational obligations
during the § 1114 process, debtors emerge from Chapter 11 as
free to terminate benefits as they would have been had they
never entered Chapter 11.
In sharp contrast, § 1114 requires the continuation of all
retiree benefits without limitation to “the period the debtor has
obligated itself to provide such benefits.” We must assume that
this omission was purposeful. As Professor Susan Stabile
explains in her thorough discussion of § 1114, “when Congress
wanted to limit a company’s responsibility for retiree benefits,
it explicitly did so. . . . The omission of [§ 1129(a)(13)’s]
explicit language in section 1114’s provisions . . . indicates that
Congress did not implicitly intend to adopt the same contractual,
durational limit in that context.’” Susan Stabile, Protecting
Retiree Medical Benefits in Bankruptcy: The Scope of Section
1114 of the Bankruptcy Code, 14 Cardozo L. Rev. 1911, 1932
49
(1993) [hereinafter “The Scope of Section 1114”]. Therefore,
during the limited period of the bankruptcy proceeding, we
conclude that Congress intended to do exactly what it said,
require the debtor to continue and not modify any retiree
benefits, even if it would not otherwise be obligated to continue
them.18
In interpreting this scheme, we also cannot ignore the
substantial change in debtors’ rights enacted in 2005 through the
amendment of § 1114 to include subsection (l). See Bankruptcy
Abuse Prevention and Consumer Protection Act of 2005, Pub.
L. No. 109-8, 119 Stat. 23 (2005) (codified at 11 U.S.C. §
1114(l)). Subsection (l) provides:
18
Moreover, as we explain below, this result is consistent
with the economic realities of bankruptcy, as well as the
circumstances and discussions that lead to enactment of the
RBBPA. Together, § 1114 and § 1129(a)(13) ensure that retiree
benefits are protected when they are most vulnerable, during the
bankruptcy proceeding itself.
50
[i]f the debtor, during the 180-day period ending
on the date of the filing of the petition – (1)
modified retiree benefits; and (2) was insolvent on
the date such benefits were modified; the court .
. . shall issue an order reinstating as of the date the
modification was made, such benefits as in effect
immediately before such date unless the court
finds that the balance of the equities clearly favors
such modification.
11 U.S.C. § 1114(l).
Subsection (l) prevents an insolvent debtor from
terminating retiree benefits in the six-month period before filing
for bankruptcy. Like the rest of § 1114, this subsection contains
no limitation based on whether the debtor has obligated itself to
continue providing these benefits. Additionally, though, §
1114(l) would be virtually meaningless if it did not apply to
those benefits the debtor could unilaterally terminate or modify.
Outside of the bankruptcy context, an employer is already
prohibited by various laws, including ERISA, the Labor-
Management Relations Act of 1947, codified in various sections
51
of 29 U.S.C., and basic principles of contract law, from
modifying those benefits it is obligated to provide. Subsection
(l) therefore has meaning only if it adds something new, namely,
the protection of benefits a would-be debtor could otherwise
terminate at will.
Subsection (l) therefore provides additional evidence of
the coherence of the statutory scheme Congress has created
here. Many of the cases relied on by Appellees to support their
contention that § 1114 cannot apply to terminable at will
benefits were decided before this 2005 amendment, and
therefore the courts issuing them did not have the benefit of this
added evidence of congressional intent. Although we think that
the language of § 1114 was always unambiguous, this
subsection certainly reinforces our view of the text. See 7
Collier on Bankruptcy ¶ 1114.03[2] (Alan N. Resnick & Henry
J. Sommer eds., 16th ed. 2009) (“[L]ending some support to [the
52
minority] view [that § 1114 applies to benefits which are
terminable at will], is the 2005 addition of new subsection (l) to
section 1114 limiting a company’s ability to ‘modify’ retiree
benefits during the 180-day period prior to the filing of the
bankruptcy petition.”).
We realize, as Visteon correctly argues, that the
bankruptcy court for the Southern District of New York in In re
Delphi Corp. recently considered and rejected the argument that
the 2005 amendment of § 1114 undermines the majority view
that the provision does not apply if benefits are terminable at
will. However, the reasoning in In re Delphi Corp. is
unpersuasive because the court’s analysis is not faithful to the
plain language rule that it purports to, and must, apply.
Although the Delphi court stated that “[t]he starting point
for [this] analysis is the language of the statute,” the court did
not actually begin its analysis with the statutory text. In re
53
Delphi Corp., 2009 WL 637315, at *2. Instead, it immediately
turned to case law and to a consideration of “fundamental
principles underlying the Bankruptcy Code.” Id. Based on
those principles, it concluded that “the provision’s language
does not compel the interpretation” that § 1114 applies to those
benefits which could be terminated unilaterally outside of the
bankruptcy context. Id. Later, the court addressed subsection
(l). It stated:
Section 1114(l) . . . does not specifically deal with
the issue of plans modifiable as of right and could
conceivably apply to pre-bankruptcy breaches by
debtors in financial distress of vested rights.
More importantly, even if it does also apply to
modifiable plans, I do not view Section 1114(l),
which applies to a specific type of prepetition
action, as overruling Doskocil and the line of
cases that follow it, which apply to postpetition
actions, nor does there appear to me to be any
legislative history or other policy statement . . .
that would clearly set forth Congress’ intention
generally in Section 1114(l) to override, beyond
its specific terms, the fundamental principle that
bankruptcy does not give new rights to individual
54
parties in interest . . . .
Id., at * 6.
This analysis exemplifies a fundamental flaw of many of
the cases which have failed to afford § 1114 its plain meaning.
Rather than beginning with the language of §§ 1114(a) or (e),
and the language of the related provisions of §§ 1114(l) or §
1129(a)(13), the Delphi court began with its own assumptions
of why § 1114 could not prohibit a debtor from doing in
bankruptcy what it could do outside of bankruptcy. It then
found statutory language, such as subsection (l), insufficiently
persuasive to alter its view of what would be an appropriate
result under Chapter 11. Statutory interpretation “should be
made of sterner stuff” than that. The language Congress chose
when crafting a statute must be considered first and foremost,
and if plain and unambiguous, it must be credited, except in
“rare and exceptional circumstances.” Rubin v. United States,
55
449 U.S. 424, 430 (1981) (internal quotation marks omitted).
Appellees argue that this is such a rare and exceptional
circumstance. “We do not look past the plain meaning unless it
produces a result demonstrably at odds with the intentions of its
drafters . . . or an outcome so bizarre that Congress could not
have intended it.” Mitchell v. Horn, 318 F.3d 523, 535 (3d Cir.
2003) (internal quotation marks and citations omitted).
Appellees argue both legislative history and absurdity. We find
neither a convincing reason to disregard the plain language of
the statute.
B. Legislative History
Appellees argue that the RBBPA’s legislative history is
inconsistent with our interpretation of § 1114. They rely on
certain legislators’ statements that § 1114 would prevent debtors
from reneging on their “promises” or their “legal and contractual
obligations.” See Visteon’s Br. 27 (listing examples of such
56
statements). Seizing on these snippets of legislative history,
Appellees contend that Congress did not intend § 1114 to apply
in the absence of such promises or obligations. The majority in
Chateaugay focused on these same statements to buttress their
conclusion that § 1114 did not apply following expiration of the
CBA requiring payment. See Chateaugay, 945 F.2d at 1210(“As numerous legislators noted, the Act was created to ‘insure
that promises made to employees during their working years are
not broken during their retirement years.’”) (quoting 133 Cong.
Rec. H1257 (daily ed. Mar. 11, 1987) (statement by Rep.
Frost)).
“[O]nly the most extraordinary showing of contrary
intentions in the legislative history will justify a departure” from
the unambiguous plain language of a statute. United States v.
Albertini, 472 U.S. 675, 680 (1985) (alteration in original)
(internal quotation marks omitted). The statements cited by
57
Visteon fall woefully short of such an “extraordinary showing
of contrary intentions.” Id. It is uncontested that § 1114 applies
to benefits that a debtor is legally or contractually obligated to
provide. Therefore, it is not the least bit surprising that the
legislative history reflects concerns about a debtor’s legal and
contractual obligations. This does not advance our inquiry very
far. We must determine if § 1114 applies only to such benefits,
despite plain language to the contrary. Neither Visteon nor the
Unsecured Creditors are able to point to a single statement
anywhere in the legislative history suggesting that the
safeguards of § 1114 are triggered only in those instances where
the debtor is legally or contractually obligated to provide
benefits.19
19
Furthermore, when Congress enacted the RBBPA, at
least some legislators seemed to have a quite different
understanding of what a legal or contractual obligation, or
promise, to provide retiree benefits constituted than we do today.
See generally Retiree Health Benefits: The Fair-Weather Promise:
58
In fact, the legislative history contains numerous
references to a much broader congressional concern. No doubt
because they were reacting to LTV’s termination of benefits,
Hearing Before the S. Spec. Comm. on Aging, 99th Cong. 2d Sess.
(1986) [hereinafter “Fair-Weather Promise”]. Then, the emergent
judicial view was that retiree benefits were presumed to vest at
retirement, unless the employer included in its SPD a clear
indication of intent not to vest those benefits. See id. at 48.
Legislators expressed concern about an employer’s ability to avoid
its “promises” and “obligations” through manipulation of
contractual language. See, e.g., id. at 2 (statement of Sen. Heinz)
(“[E]mployers clever enough to place limits on their contract
promises will have no obligation to pay.”). In this context, we
think the discussions of legal and contractual obligations and
promises that Appellees point to may not have referred only to
those benefits we would now call “vested,” but likely also
encapsulated certain legislators’ opinions that an employer had an
“obligation,” once an employee retired, to continue payment of
retiree benefits, notwithstanding contractual language to the
contrary. See, e.g., id. at 12 (statement of Sen. Wilson)
(“Employers, we know, can easily place limits on the contracts;
they can release themselves from an obligation to pay. Many have,
or we would not be here today. . . . It is unfortunate that we need to
be involved, and I think Congress has a responsibility to assist in
providing some remedy for those threatened with such unremedied
breach of contract.”); see also infra Section IV.C. Furthermore,
we note that terms such as “promise” and “obligation” need not
refer only to promises and obligations enforced by law.
59
legislators discussed the “legitimate expectations” of retirees,
and the necessity in a “just society” of giving effect to those
expectations whenever possible. Representative Fish stated:
“[t]hese retiree benefits, in my judgment, should receive special
Bankruptcy Code protection because a just society has an
interest in trying to effectuate the legitimate expectations of
former workers – and vulnerable retirees may suffer enormously
from benefit terminations.” 134 Cong. Rec. H3486-02 (daily ed.
May 23, 1988) (statement of Rep. Fish) (emphasis added).
Similarly, Representative Feighan said:
Under current law, retirees of bankrupt
corporations often find their legitimate
expectations of long-term health and life
insurance coverage shattered – by the very
company for whom they worked all their lives.
Those who build a company deserve better. They
have earned the right to be treated fairly and
compassionately. . . . [This bill] would clarify the
Bankruptcy Code to end the current unfairness.
Id. (statement of Rep. Feighan) (emphasis added).
60
Moreover, we do not believe that those legislators who
spoke of “legitimate” expectations were referring only to vested
benefits or benefits provided under an unexpired CBA. As
Representative Edwards explained, Congress thought it
“imperative that [it] protect the retirees from the sudden and
unilateral termination of their health, life, and disability benefits
. . . [because] [r]etirees who have devoted their working lives to
the betterment of their employers’ businesses deserve payment
of their retiree health benefits to the fullest extent possible in a
reorganization.”20 Id. (statement of Rep. Edwards) (emphasis
added).
20
“Cherry-picking” favorable snippets of legislative history
to establish the meaning of subsequently enacted legislation is an
enterprise rife with the potential for mischief and abuse. We
emphasize that we consider these statements not to find the
meaning of § 1114 – its meaning is plain – but for the limited
purpose of evaluating whether that plain language is
“demonstrably at odds with the intentions of its drafters,” Mitchell,
318 F.3d at 535 (internal quotation marks omitted), which it
clearly is not.
61
We also think the statements of Senator Metzenbaum, the
Senate sponsor of the RBBPA, merit serious attention. In
discussing the scope of the legislation, he described a legislative
intent directly at odds with the majority’s construction of the
statute in Chateaugay. Senator Metzenbaum explained that the
bill “requires a company to continue paying for these [retiree]
benefits even after the termination of a collective bargaining
agreement. Only if a company can prove a modification is
absolutely necessary and that it treats everyone fairly can a
court, after a hearing, order any modification.” Retiree Benefits
Security Act of 1987: Hearings on S. 548 Before the Subcomm.
on Courts and Administrative Practice of the S. Comm. on the
Judiciary, 100th Cong., 1st Sess. 14 (1987) [hereinafter “1987
Senate Hearings”] (statement of Sen. Metzenbaum) (emphasis
added). Senator Metzenbaum also explained the policy
concerns underlying the legislation: “Bankruptcies are painful
62
for workers, communities, small business suppliers and others.
But the burden of turning a company around should not rest on
the backs of retirees. They deserve a fair shake from the
companies they build and from the law governing the
reorganization process.” 134 Cong. Rec. S6823-02 (daily ed.
May 26, 1988) (statement of Sen. Metzenbaum) (emphasis
added). All of these remarks speak of a far broader legislative
intent than Appellees would have us believe.21
21
Appellees also draw our attention to those statements in
the legislative history which refer to congressional concern with
the “unilateral” termination of retiree benefits by a debtor. They
argue that when a debtor terminates benefits pursuant to a reserved
right in the plan, this is not a “unilateral” termination of benefits,
as the retirees have in effect consented to their benefits being
terminated by agreeing to work (and retire) under these terms.
This argument originates from the district court’s analysis in
Chateaugay. That court reasoned that when a debtor terminates
benefits based on the expiration of a CBA, it does not
“unilaterally” terminate benefits. LTV Steel Co. v. Connors (In re
Chateaugay Corp.), 111 B.R. 399, 404-05 (S.D.N.Y. 1990).
We do not disagree that Congress evidenced a concern
about unilateral termination of benefits. However, we are not
persuaded by the linguistic contortions necessary to equate a
debtor’s unilateral invocation of a reservation of rights clause with
63
Appellees’ argument also ignores additional pieces of
legislative history that specifically address the scope of § 1114.
The Report drafted to accompany the Senate version of the bill,
a more authoritative piece of legislative history than statements
of individual legislators, explains:
Section 1114 makes it clear that when a Chapter
11 petition is filed retiree benefit payments must
be continued without change until and unless a
modification is agreed to by the parties or ordered
by the court. Section 1114(e)(1) rejects any other
basis for trustees to cease or modify retiree
benefit payments.
S. Rep. No. 100-119, 1988 U.S.C.C.A.N. at 687 (emphasis
added). That Report, like the section it references, could hardly
a bilateral termination of benefits. As Professor Stabile explains,
this line of reasoning confuses “unilateral termination of benefits”
with “a unilateral change in the obligation to provide benefits.”
Stabile, The Scope of Section 1114 at 1940-41. Even though a
debtor invoking a termination clause does not unilaterally change
its obligation to provide benefits, it most certainly unilaterally
terminates benefits, and it was the latter of these two with which
Congress was concerned.
64
be more clear. Once a Chapter 11 petition is filed, there is only
one way to terminate or modify retiree benefits while the debtor
remains in Chapter 11, and that is through the procedure
established in § 1114. Again, the fact that the debtor could
terminate those same benefits outside of bankruptcy is
irrelevant. See also 134 Cong. Rec. S6823-02 (daily ed. May
26, 1988) (statement of Sen. Heflin) (“Companies cannot
unilaterally terminate benefits for retirees when the company
files Chapter 11. Rather, this bill makes it clear that when a
Chapter 11 petition is filed, retiree benefit payments must be
continued without change, until or unless a modification is
agreed to by the parties or ordered by the court.”); Id.
(statement of Sen. Metzenbaum) (“[T]his measure makes
absolutely clear that reorganizing companies may never
unilaterally cut off retiree insurance benefits.”).
Our analysis of legislative history would be incomplete
65
without further discussion of the underlying events that moved
Congress to enact the RBBPA. See Elliot Coal Mining Co. v.
Office of Workers’ Comp. Programs, 17 F.3d 616, 631 (3d Cir.
1994) (A court should “look to the ‘mischief and defect’ that the
statute was intended to cure.”) (quoting Heydon’s Case, 76 Eng.
Rep. 637 (Ex. 1584)).
Here, there is no question that Congress enacted the
RBBPA to respond to the harm (and outrage) following LTV
Corporation’s termination of the benefits of 78,000 retirees
without notice during its 1986 bankruptcy. As one legislator
explained:
[t]he vulnerability of retiree benefits was exposed
when LTV unilaterally terminated the health and
life insurance benefits of tens of thousands of
retirees across the country. Public outrage
followed causing LTV to restore the benefits, but
the ensuing fear and mistrust made it obvious that
a legislative response was necessary. Congress
needed to ensure workers that a unilateral
termination would never occur again.
66
134 Cong. Rec. E1672-02 (daily ed. May 24, 1988) (statement
by Rep. Oakar).
In attempting to craft an appropriate legislative response
to LTV’s bankruptcy, Congress heard testimony about the
effect of LTV’s bankruptcy on its retirees, see generally LTV
Bankruptcy: Hearing before the S. Comm. on the Judiciary, 99th
Cong., 2d Sess. (1986) [hereinafter “LTV Bankruptcy”], as well
as about the broader causes of retiree benefit insecurity, see
generally Fair-Weather Promise. Congress was aware that
among the retirees affected by LTV’s actions “were persons
who received their insurance benefits pursuant to collective
bargaining agreements, and those who received those benefits
pursuant to non-collectively bargained plans.” S. Rep. No. 100-
119, 1988 U.S.C.C.A.N. at 683. Congress accordingly was fully
committed to ensuring that both union and non-union employees
would be equally protected by the RBBPA. See, e.g., 134 Cong.
67
Rec. 12,698 (statement of Sen. Metzenbaum) (“The provisions
of [the RBBPA] apply to union and nonunion retirees.”); LTV
Bankruptcy at 52 (statement of Sen. Metzenbaum) (“[W]e will
make every effort at the legislative level to protect the rights of
the salaried employees just as we will make an effort to protect
the rights of the employees who have the collective bargaining
agreement.”). Importantly, Congress also heard testimony that
since retiree benefits were increasingly “unvested,” see Fair-
Weather Promise at 24, 43, 78, soon the only benefits employers
would not be able to unilaterally terminate outside of bankruptcy
were those covered by a current contractual agreement, such as
a CBA, id. at 53-54. Congress was therefore aware that debtors
would almost always have an extra-bankruptcy right to
unilaterally terminate the benefits of non-union employees.
If we were to credit Appellees’ interpretation of § 1114
and remove from its protections those benefits that could be
68
unilaterally terminated outside of bankruptcy, the provision
would almost never protect non-union employees. As Congress
knew, “[a]ny debtor – most debtors, more than likely – would be
able to point to language . . . giving them the right to unilaterally
terminate the programs.” In re Farmland Indus., Inc., 294 B.R.
at 917. Appellees’ reading therefore “eviscerate[s]” the statute,
making it “essentially only apply to collective bargaining
agreements or other bargained-for programs, and the legislative
history makes it clear that such limitations were not intended.”
Id.Appellees also cite to subsequent legislative history in
support of their argument that § 1114 does not apply to benefits
that could be unilaterally terminated outside of bankruptcy. In
2007, bills were introduced in both houses of Congress which
would have added a clause stating that § 1114’s protections
apply “whether or not the debtor asserts a right to unilaterally
69
modify such payments under such plan, fund, or program.”
H.R. 3652, 110th Cong. § 9 (2007); see also S. 2092, 110th
Cong. § 9 (2007). Neither bill was enacted into law. Appellees
insist that Congress’ consideration and rejection of these
amendments indicates both that § 1114 does not apply to
benefits that are terminable at will, and that Congress concluded
that extending protection to such benefits was unwise.
We are unpersuaded. Evidence of congressional inaction
is generally entitled to minimal weight in the interpretive
process. This is especially true where Congress enacts a statute
as clear as this one. In Pension Benefit Guaranty Corp. v. LTV
Corp., 496 U.S. 633 (1990), a case which also arose in the wake
of LTV’s bankruptcy, the Supreme Court addressed whether the
Pension Benefit Guaranty Corporation (“PBGC”) could base a
decision to order an employer to restore a pension plan on the
employer’s creation of “follow-on” plans, which the PBGC
70
believed improperly exploited the agency. LTV relied in part
upon the fact that Congress had considered, but not enacted, an
amendment that would have expressly authorized the PBGC to
prohibit follow-on plans. Because Congress rejected the
amendment, LTV argued that the Court should infer that
Congress did not want the agency to have this authority. The
Court was not convinced. It explained that:
subsequent legislative history is a hazardous basis
for inferring the intent of an earlier Congress. . .
. It is a particularly dangerous ground on which to
rest an interpretation of a prior statute when it
concerns, as it does here, a proposal that does not
become law. . . . Congressional inaction lacks
persuasive significance because several equally
tenable inferences may be drawn from such
inaction including the inference that the existing
legislation already incorporated the offered
change.
Id. at 650 (internal quotation marks and citations omitted)
(emphasis added).
Here, too, we think the best inference to be drawn from
71
the subsequent legislative history relied on by Appellees is that
Congress chose not to act because the “existing legislation
already incorporated the offered change.” Id.C. Absurdity
As we have discussed, a court must give effect to a
statute’s unambiguous plain language “unless it produces a
result demonstrably at odds with the intentions of its drafters .
. . or an outcome so bizarre that Congress could not have
intended it.” Mitchell, 318 F.3d at 535 (internal quotation marks
and citations omitted); see also Holy Trinity Church v. United
States, 143 U.S. 457 (1892) (“If a literal construction of the
words of a statute be absurd, the act must be so construed as to
avoid the absurdity. The court must restrain the words.”)
(internal quotation marks and citations omitted). Having
concluded that § 1114 is unambiguous and certainly not
demonstrably at odds with indications of congressional intent in
72
the statute’s legislative history, we are left with Appellees’ final
argument: that interpreting § 1114 to give retirees more rights
under Chapter 11 than they would have outside of bankruptcy is
so absurd, notwithstanding the plain language of the statute and
all the indications of congressional intent discussed above, that
Congress simply could not have intended the result. This
argument reflects a major source of confusion about § 1114, and
we believe it is the primary reason that courts have failed to give
effect to the statute as written. Accordingly, although we find
the argument meritless, we address it with particular care.
Appellees begin by emphasizing that our reading of §
1114 is contrary to the fundamental bankruptcy principle that
“prepetition contract rights and property interests should not be
analyzed differently or enhanced simply because an interested
party is involved in a bankruptcy case.” Visteon’s Br. 33
(quoting In re Delphi Corp., 2009 WL 637315, at *2).
73
However, as the Supreme Court explained in Butner v. United
States, “[t]he constitutional authority of Congress to establish
‘uniform Laws on the subject of Bankruptcies throughout the
United States’ would clearly encompass a federal statute”
modifying underlying property rights for the purposes of
bankruptcy. 440 U.S. 48, 54 (1979) (quoting U.S. Const., Art.
I, § 8, cl. 4). Thus, although property interests are usually
defined by non-bankruptcy law, a “federal interest [may]
require[] a different result.” Id. at 55.
Section 1114 unambiguously states that federal
bankruptcy law compels a “different result” here, yet courts
have refused to allow that result. For example, the bankruptcy
court reasoned, § 1114 “cannot modify existing [non-
bankruptcy] law absen[t] some specific bankruptcy reason and
there is none here in connection with the issue of non-vested
retiree benefits.” J.A. 3574. Consistent with that court’s
74
conclusion, Appellees argue that it would be absurd to impose
restrictions on the modification of benefits in bankruptcy that
ERISA ensures will not be imposed outside of bankruptcy. As
a threshold matter, we point out that this argument sets far too
low a bar for “absurdity.” See Terlingo, 327 F.3d at 221 (Courts
may look behind a statute only when the plain meaning
produces “a result that is not just unwise but is clearly absurd.”)
(internal quotation marks omitted). Furthermore, as we will
now explain, it is also based on a fundamental misunderstanding
of the context in which the RBBPA was enacted, as well as the
practical realities surrounding an employer’s provision of
benefits to its retirees.
We begin with a brief discussion of how retiree benefits
are treated under ERISA. ERISA was enacted “to promote the
interests of employees and their beneficiaries in employee
benefit plans,” Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 90
75
(1983), and to “protect contractually defined benefits,” Mass.
Mut. Life Ins. v. Russell, 473 U.S. 134, 148 (1985). Although
ERISA contains elaborate vesting requirements for pension
plans, it does not mandate vesting of welfare benefit plans, such
as those providing retiree health and life insurance benefits. See
In re Unisys Corp. Retiree Med. Benefit ERISA Litig., 58 F.3d
896, 901 (3d Cir. 1995) (“Unisys II”). “This was not merely an
oversight on the part of Congress.” UAW v. Skinner Engine Co.,
188 F.3d 130, 138 (3d Cir. 1999). Congress did not impose
vesting requirements on welfare benefit plans because:
it determined that [t]o require the vesting of those
ancillary benefits would seriously complicate the
administration and increase the cost of plans
whose primary function is to provide retirement
income. . . . In rejecting the automatic vesting of
welfare plans, Congress evidenced its recognition
of the need for flexibility with regard to an
employer’s right to change medical plans.
Unisys II, 58 F.3d at 901 (alteration in original) (internal
76
quotation marks and citations omitted). Congress believed that
imposing strict requirements on these benefits and thereby
denying employers their valued flexibility would result in
employers choosing not to provide the benefits at all.
Employers are for this reason “generally free . . . for any reason
at any time, to adopt, modify, or terminate welfare plans.”
Curtiss-Wright Corp. v. Schoonejongen, 514 U.S. 73, 78 (1995).
In light of the policy concerns underlying ERISA,
Appellees argue that it is nonsensical to protect during
bankruptcy what Congress purposefully refused to protect
otherwise. That argument, however, is premised on the false
assumption that the Congress that enacted the RBBPA was
content with the fallout from the policy decisions embedded in
ERISA. The legislative history of the RBBPA22 establishes the
22
Again, we consider this history not to find the meaning
of § 1114, as its meaning is clear, but as a response to Appellees’
argument that the statute’s plain language is absurd and must be
77
contrary – that many of its drafters were deeply troubled by the
social problems that had resulted from the exclusion of retiree
welfare benefits from ERISA’s protections.
As we have noted, LTV’s termination of retiree benefits
prompted Congress to study not only the treatment of retiree
benefits during bankruptcy, but for the first time after enacting
ERISA, to evaluate the sufficiency of retiree benefit protections
more broadly. See generally Fair-Weather Promise. The
consensus of many who testified before Congress was that
retiree health benefits were unacceptably vulnerable because
retirees, unlike working employees, were often entirely
dependent on these benefits, and yet the law failed to ensure that
they vested at retirement. Although federal common law under
ERISA was then more protective of retiree benefits than it is
now, the emerging judicial view at that time was that retiree
rejected.
78
benefits would vest at retirement, unless the employer clearly
indicated a contrary intent.23 See, e.g., id. at 46-59. Employers,
armed with this knowledge, were including reservation of rights
clauses in virtually all new plans. See, e.g., id. at 43 (testimony
of Willis B. Goldbeck, Washington Business Group on Health)
(“[N]o new plans are being written without very explicit
authority to alter or terminate.”). Accordingly, most retiree
benefits, at least for non-union retirees, would soon be entirely
without protection, susceptible to termination not only during a
bankruptcy, but whenever an employer “simply amends the
plan.”24 Id. at 94.
23
We have held that retiree benefits do not vest, even upon
retirement, unless the employer has clearly and unambiguously
indicated its intent for them to do so See, e.g., Skinner, 188 F.3d at
141.
24
At minimum, with this extensive legislative history in
mind, we think it virtually impossible that Congress, if it had
intended to exclude unilaterally terminable benefits from § 1114’s
protection, would not have addressed the issue directly. Given its
79
Some legislators thus concluded that the problem that
must be remedied was not just bankruptcy law,25 but ERISA
itself. See, e.g, id. at 16 (statement of Sen. Dodd) (“With the
enactment of ERISA in 1974, the Government for the first time
. . . rightly assumed a role in guaranteeing pension rights in the
private sector. It may be time to consider extending similar
protections to earned health benefits.”). Although some
acute awareness that many retiree benefits were unprotected
outside of bankruptcy, its decision to draft legislation protecting
any retiree benefit payments takes on an even greater salience.
25
Notably, Congress heard testimony emphasizing that
bankruptcy law was neither the primary cause, nor the ideal
solution, for the retiree health care problem. Professor Baird from
University of Chicago School of Law explained: “[t]he basic rule
of bankruptcy law is that it takes rights as they exist outside of
bankruptcy. Retiree health benefits fare poorly in bankruptcy
because of the status of these rights outside bankruptcy. . . . [T]he
solution is not to change the bankruptcy laws, but rather to change
the rights of these retirees under nonbankruptcy law.” Fair-
Weather Promise at 62. He added: “I would caution against trying
to solve the problem by creating a special status for retiree health
benefits in bankruptcy. . . . [If you do so,] you are only curing half
the problem.” Id.
80
continued to be wary about extending the full panoply of ERISA
protections to retiree benefits, see, e.g., id. at 2 (statement of
Sen. Heinz) (“[T]he simple solution would be for the Congress
to step in, as we did 12 years ago with pensions, and make these
benefits permanent at retirement, but we also need to recognize
the chilling effect this would have on the employer’s willingness
even to offer these benefits.”), there was still significant support
for extending at least some ERISA protections to the retiree
welfare benefit context, see, e.g., id. at 18 (statement of Sen.
Glenn) (expressing support for minimum funding requirements
for retiree health insurance plans); see also id. at 95 (staff report
recommending additional protections for all retiree benefits,
including funding and notification requirements, and
“explor[ation of] a permanent means for protecting unfunded
retiree health benefits in full.”).
Ultimately, the RBBPA addressed retiree benefits only
81
during bankruptcy. Nonetheless, the Senate Report indicates
that congressional concern continued to extend further. The
Report discusses generally the “hardship imposed on elderly
recipients when such benefits are suddenly curtailed.” S. Rep.
No. 100-119, 1988 U.S.C.C.A.N. at 684. However, it explains,
“this bill addresses the needs of retirees within [the] context of
the traditional structure of the Bankruptcy Code. The broader
issues associated with retiree benefits remain to be addressed by
other committees of appropriate jurisdiction.” Id.
To the extent that some courts have been unable to
understand why Congress would protect certain retiree benefits
during bankruptcy, but not otherwise, the short answer may be
that the RBBPA, like many legislative enactments, was an
imperfect compromise. Whether the statute was the best
protection that could be agreed upon, or whether it was intended
only as a first step, the RBBPA is the middle-ground that
82
became law. That it is a partial solution to congressional
concerns in no way converts it into an absurdity. Virtually all
laws would be absurd if judged by whether they accomplish a
perfect solution to an underlying legislative concern.
Moreover, since many members of Congress were deeply
upset at the prospect of employers terminating benefits during
retirement, but were either unable or unwilling to require
vesting, there is a compelling logic to protecting these benefits
solely during bankruptcy – when benefits are highly vulnerable,
and limited protections can have a significant impact.
As the union explained at oral argument, employers do
not offer retiree benefits solely to be charitable. Under normal
conditions, retiree benefits benefit the employer as well as the
retiree. Retiree benefits are often a form of deferred
83
compensation.26 Through their provision, an employer is able to
secure work now, and pay for it only fully in the future.
Furthermore, these benefits boost morale and help an employer
retain qualified employees. Contrary, during “good times,”
market forces do much to restrain an employer from exercising
any retained right to terminate benefits.
The same is not true during “bad times.” It is then that
retiree benefits are most at risk. Of course, one of the purposes
underlying ERISA is to allow employers flexibility to terminate
benefits when they feel it prudent to do so, as they presumably
might during an economic downturn. A Chapter 11
reorganization is unique, however, because a reorganizing
26
The record certainly shows this to be true here. The
union has proffered substantial evidence that workers at both the
Connersville and Bedford plants agreed to forego wage increases
in exchange for retiree health benefits. According to union
calculations, in order to secure these benefits, each Connersville
retiree deferred $23,973.60 of her/his compensation, and each
Bedford retiree deferred $60,908.00. J.A. 1646-54.
84
company avails itself of the statutory privilege of bankruptcy in
order to transition to greater viability. A reorganizing company
hopes to emerge and be profitable, at which point the provision
of retiree benefits might again inure to its benefit. During the
reorganization process itself, though, the debtor faces intense
pressure both internally and externally to relieve itself of all
perceived liabilities, even those it might otherwise be inclined
to keep. See LTV Bankruptcy at 14 (testimony of Richard
Trumka, National President of The United Mineworkers of
America) (“LTV says it is under enormous pressure from its
creditors, banks, and vendors.”); 1987 Senate Hearings at 16
(statement of Sen. Heinz) (Making matters worse in bankruptcy
is that “the banks and in some cases the active workers may
agree” that retiree benefits are “some kind of an albatross.”27).
27
For example, the Unsecured Creditors insist that the
retiree benefits here “do not accrete any value to Visteon.”
Unsecured Creditors’ Br. 18 (emphasis added).
85
Thus, as Professor Stabile thoughtfully explains,
bankruptcy distorts the normal decision-making process:
Outside of bankruptcy, employers evaluate
changes in employee benefit plans in terms of
their impact on overall human resource objectives
as well as financial objectives; decisions about a
particular benefit are made within the broad
context of an employer’s total compensation and
benefits package. That overall framework is
missing in a Chapter 11 case, where a debtor
faces pressures that distort nonbankruptcy
planning and decisions. In Chapter 11, the debtor
effectively does not act as a sole decision-maker.
A strong creditors’ committee or even a
particularly large individual creditor plays a large
role in the debtor’s decision-making. Within the
confines of a bankruptcy proceeding, there is thus
a desire to temporarily freeze the status quo
regarding benefits, and to allow modification of
those benefits only in a supervised manner that
attempts to resolve the competing interests of
retirees, debtors, and creditors.
Stabile, The Scope of Section 1114 at 1953-54.
Against this backdrop, § 1114 can be seen as affording
additional protection to retiree benefits just as legal and
86
economic pressures converge to encourage a debtor to terminate
benefits based on short-term considerations with insufficient
regard for long-term consequences to retirees or to the debtor
itself. Protecting these benefits during a Chapter 11
reorganization is thus a measured middle-ground.
Moreover, courts that have concluded it is absurd to
apply § 1114 to benefits that could be terminated outside of
bankruptcy have often misinterpreted the rigidity of the
section’s protections, and therefore the extent to which the
statute is in tension with ERISA. Section 1114 does not prohibit
the termination of benefits during a bankruptcy proceeding.
Rather, it creates an equitable procedure through which the
debtor can argue the economic necessity of doing so, and the
retirees can counter with their own arguments about economics,
fairness, and equity. The specter of this process may, by itself,
foster an agreement about continuing or modifying retiree
87
benefits that would otherwise be impossible to reach. However,
if no agreement is reached, a court can, and in fact must, order
modification (or termination) of benefits if doing so is necessary
to the reorganization, fair to all affected, and clearly favored by
the equities. This is a high standard to reach, but that is
consistent with the belief that reorganization should not take
place, if at all possible, “on the backs” of retired workers. 134
Cong. Rec. S6823-02 (daily ed. May 26, 1988) (statement of
Sen. Metzenbaum). Importantly, though, in its weighing of the
equities, a court will undoubtedly consider whether the debtor
has reserved the right to unilaterally terminate benefits. It would
not be the beginning and the end of the court’s inquiry, and the
court would have to decide how much weight to give that factor
in light of all the other equities. Still, a debtor’s legal rights
under ERISA are not irrelevant during the § 1114 process.
Additionally, it must be remembered that § 1114’s
88
protections terminate upon plan confirmation, when the
distorting pressures discussed above recede. Thus, contrary to
the court’s conclusion in In re N. Am. Royalties, Inc., 276 B.R.
at 867 (construing § 1129(a)(13) as “vest[ing] . . . benefits after
reorganization”), § 1129(a)(13) does not vest benefits. As we
have explained, upon emergence from bankruptcy, §
1129(a)(13) ensures that a debtor who reserved the right to
terminate retiree benefits has no ongoing obligation, other than
one that may have been voluntarily undertaken during the §
1114 process, to continue to provide benefits.
Therefore, § 1114 is neither entirely nor permanently in
derogation of underlying contractual rights. For the most part,
all § 1114 guarantees retirees is a voice, and some minimal
amount of leverage, in a process that could otherwise be nothing
short of devastating to them and to their families and
89
communities.28 As one legislator explained: “[t]his legislation
will not guarantee continuation of these benefits, but it will
provide a mechanism that will allow the retirees’ position to be
heard.” 133 Cong. Rec. 3,732 (1987); see also 134 Cong. Rec.
S6823-02 (daily ed. May 26, 1988) (statement of Sen. Heinz)
(“While chapter 11 reorganization . . . work[ed] to protect the
28
We emphasize that Congress enacted the RBBPA
because it considered the termination of retiree benefits a true
human tragedy. Some legislators reacted to LTV’s termination of
retiree health and life insurance benefits with horror,
characterizing it as “one of the most indefensible and
unconscionable acts of any American corporation in this century.”
LTV Bankruptcy at 28 (statement of Rep. Feighan). Although
Visteon has proceeded with far greater care than LTV, the record
shows that the consequences of its termination of benefits have
nonetheless been catastrophic. Visteon’s unilateral decision to
terminate benefits has left some retirees without medical care
entirely, and forced those too critically ill to do without medical
care to sacrifice basic necessities in order to pay for COBRA
coverage. See J.A. 3624-87. This is to say nothing of the stress
and anxiety that all Visteon retirees have suffered, see id., and the
collective impact of each of these individual tragedies on the
broader Connersville and Bedford communities, see J.A. 1718,
3779. Congress hoped to ameliorate exactly this sort of human
suffering by enacting the RBBPA.
90
interests of the major, and usually secured, creditors, it left the
retirees totally exposed to catastrophic medical losses while
bankruptcy lawyers bickered over the reorganization plan. The
retirees had no way to make their concerns known to the court
during bankruptcy”). We therefore reject Visteon’s
characterization of § 1114 as a “hammer.” It is much more
accurately characterized as a “microphone,” intended to elevate
the voices of those who would otherwise not be heard above the
din of more powerful creditors carving up the pie of the
bankruptcy estate.
Appellees attempt to argue that our interpretation of §
1114 results in the statute being the only provision of the
bankruptcy code that improves upon a creditor’s rights in
bankruptcy; the union does not counter that assertion.29
29
Of course, as amended, § 1114 contains not one, but two,
distinct provisions improving upon creditors’ prepetition contract
rights, § 1114(e) and § 1114(l).
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Assuming, arguendo, that the statutory scheme of § 1114 is
unique, this result is certainly not absurd given Congress’
concerns. The RBBPA’s legislative history is replete with
references to the unique nature of retiree benefits in a
bankruptcy proceeding, and it is therefore not surprising that
Congress would afford them unique protections. As the Senate
Report noted: “[t]he special treatment accorded retiree benefit
payments is appropriate because of the hardship imposed on
elderly recipients when such benefits are suddenly curtailed.”
S. Rep. No. 100-119, 1988 U.S.C.C.A.N. at 684. Senator Heinz
reasoned that “special” protection was necessary to ensure
equality of treatment: “[Retirees] don’t start out on a[n] equal
footing with other creditors. . . . [This bill protects] retirees from
the kinds of risks no other creditors face.” 1987 Hearings at 20
(statement of Sen. Heinz). The court in In re Farmland Indus.,
Inc. thus found it unremarkable that retirees were uniquely
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protected in bankruptcy:
Congress doubtlessly recognized that retirees as a
class are unique in a bankruptcy proceeding and
that they are deserving of special protection. . . .
As a general rule, retirees are particularly
vulnerable when their former employer goes
bankrupt, because of their ages, their reduced
incomes, and their inability to replace the benefits
. . . that are being terminated. Unlike business
and trade creditors, retirees are unable to set aside
reserves for possible losses or to pass along their
losses to other customers. . . . All of these suggest
a sound basis and rationale for Congress’
according special protections to retirees who are
caught up in a Chapter 11 proceeding.
294 B.R. at 918-19.
For all of these reasons, we conclude that the rule of
statutory construction allowing a court to ignore the plain
language of a statute when literal interpretation results in
absurdity is entirely inapplicable here. Far from being “absurd,”
a literal interpretation of § 1114 reveals a remedial and equitable
statutory scheme that, consistent with Congress’ concerns when
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enacting the RBBPA, attempts to prevent the human dimension
of terminating retiree benefits from being obscured by the
business of bankruptcy. If the limited role of federal courts in
a democratic society is to mean anything, the doctrine of
“absurdity” must not be employed merely because interpreting
a statute as enacted yields a result that is contrary to a judge’s
personal beliefs about how things should be.
The text of § 1114 is plain in meaning and breadth. Its
wisdom is not for us to decide. We need not, and should not, be
concerned with whether retiree benefits should be extended
greater protection during bankruptcy than otherwise; that is a job
for Congress. We need only give effect to the law Congress has
enacted.
V. Conclusion
For the reasons set forth above, we will reverse the
district court’s order that affirmed the bankruptcy court’s order
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permitting Visteon to terminate provision of retiree health and
life insurance benefits without complying with § 1114.
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