United States: Third Circuit Rules Failure To Appeal Leaves Union And Its Retirees Without A Remedy

On August 28, 2014, the Court of Appeals for the Third Circuit¹ delivered a stern admonition about the risk of failing to appeal when it ruled that a union that had not filed a notice of appeal could not benefit from a successful appeal by another union in the same matter.² The decision directly affects many retirees of a bankrupt auto parts supplier, but all litigants should view this as a cautionary tale.

Background

The Visteon Corporation ("Visteon") filed a petition for bankruptcy under Chapter 11 in 2009, and shortly thereafter filed a motion pursuant to 11 U.S.C. § 363(b)(1)³ to terminate "other post-employment benefits" provided to a number of its retirees⁴, who had worked at several plants in the United States and Puerto Rico. Notice was given to the retirees as well as to the labor organizations that had represented them at the plants, The International Union, United Automobile, Aerospace and Agricultural Implement Workers of America ("UAW") and the Industrial Division of the Communications Workers of America ("IUE").⁵ The labor organizations as well as numerous salaried employees contested the motion, arguing that Visteon would have to follow the provisions laid out in Section 1114 of the Bankruptcy Code.⁶ The Bankruptcy Court, however, incorrectly determined that Visteon could unilaterally terminate the benefits⁷.

The IUE appealed the order on behalf of the retirees it represented from several of Visteon's former plants to the District Court, which affirmed the Bankruptcy Court. Of significance here, the UAW did not appeal. The IUE subsequently appealed to the Third Circuit, which reversed and "held that Visteon could not terminate retiree benefits without employing the special procedures of § 1114."⁸ Upon reversal by the Third Circuit,⁹ both the IUE and the UAW moved the Bankruptcy Court to reinstate the benefits for all retirees. The Bankruptcy Court agreed and reinstated the benefits on August 30, 2010 (for all except the retirees from North Penn)¹⁰. Visteon's reorganization plan was confirmed on August 31, 2010 and it emerged from bankruptcy on October 1, 2010.¹¹

Visteon appealed the August 30, 2010 reinstatement order to the District Court, arguing that the UAW and its retirees were bound by the termination order because they never appealed it. Visteon also argued that "because the UAW was not a party in the IUE's appeal, it could not now reap the benefit of the relief that we gave to the IUE."¹² The District Court ruled for Visteon. This appeal followed.

The UAW Appeal

In considering the UAW's appeal, the Third Circuit panel reviewed precedent from the Third Circuit and the Supreme Court on taking appeals from final orders. The panel noted that "[i]t is clear 'that any party contesting an unfavorable order or judgment below must file an appeal,'"¹³ and that "a party which does not appeal a decision by a district court cannot receive relief with respect to that decision."¹⁴ In addition, the panel stated that "[a] party that makes 'a considered choice not to appeal . . . cannot be relieved of such a choice because hindsight seems to indicate to him that his decision not to appeal was probably wrong.'"¹⁵ The panel emphasized the finality of "final orders" and also viewed as instructive the Supreme Court's Ackermann decision, where a brother appealed an adverse decision but his sister and the sister's husband did not, and when the brother prevailed, the sister and her husband tried to avail themselves of that victory. The Supreme Court rejected that attempt, noting they had a duty to take legal steps to protect their interests and that the brother's victory could not undo their decision not to appeal.¹⁶

The panel viewed the application of these principles as "relatively straightforward" and summarized it as follows:

The UAW opposed Visteon's motion to terminate OPEB for its retirees in the Bankruptcy Court and lost. The Bankruptcy Court entered an order which was final and appealable as to this specific issue. If the UAW wanted relief from that order, it had to appeal. It did not. Just as Visteon would have been bound by that order had it lost and not appealed, so is the UAW.¹⁷

The panel characterized the UAW's decision not to appeal as one "that the UAW made in a 'calculated and deliberate' fashion."¹⁸ The UAW, the Court explained, cannot now "seek to be the windfall beneficiaries of an appellate reversal procured by other independent parties."¹⁹

The UAW offered several arguments to support its appeal. One was that its failure to appeal should not bind its retirees because it was never appointed to represent such former employees. "According to the UAW, because retirees are not employees that are current members of the UAW's bargaining unit, [and thus] the UAW could only represent them after it was appointed to represent them through the process of § 1114."²⁰ The Court rejected this, asserting that it was contrary to the UAW's course of conduct in the litigation.²¹

The UAW also asserted that the Third Circuit's decision in the first Visteon appeal rendered the termination order void ab initio thus, the retiree benefits were never actually terminated. This theory was rejected by two of the judges on the panel.²² Another argument by the UAW was that the confirmation of the plan incorporating the reinstatement of benefits mooted the current appeal by Visteon: "Visteon would have needed to appeal the plan in order to pursue an appeal of the OPEB reinstatement order."²³ The Court rejected this argument as contrary to Third Circuit precedent holding that "[t]he confirmation of [the debtor's] plan of reorganization does not moot [an] appeal."²⁴ Finally, the UAW argued that the Bankruptcy Court could have restored the benefits under a "law of the case" theory. But the Court disagreed, holding that the Bankruptcy Court's order terminating the benefits was "final" and immediately appealable and binding absent such appeal.²⁵

The Chief Judge dissented from the majority's decision, noting that "Visteon's purported termination of employee benefits without complying with § 1114 was obviously void because that action was prohibited by the Bankruptcy Code," and relying on the Third Circuit's earlier decision in In re Visteon, 612 F.3d 2010 (3d Cir. 2010)²⁶. He distinguished the Ackermann Supreme Court decision relied on by the majority, stating that "[t]his case is different because Visteon's actions negate explicit procedural protections Congress intended to create as part of the bankruptcy process."²⁷ Further, the Chief Judge noted that "the statutory requirements of bankruptcy proceedings remain the same, and it is clear that Visteon did not do what the law required in order to terminate benefits."²⁸

It is presently unclear whether the UAW will seek further appellate review.

Footnotes

1.The three-judge panel included Circuit Chief Judge Theodore A. McKee, and Circuit Judges Michael A. Chagares and Richard L. Nygaard. Circuit Judge Chagares drafted the panel's unpublished opinion while Chief Judge McKee drafted an opinion concurring in part and dissenting in part.

2.In re Visteon Corp., 2014 WL 4244022 (3d Cir. August 28, 2014).

3.11 U.S.C. § 363(b)(1) provides that "[t]he trustee, after notice and a hearing, may use, sell, or lease, other than in the ordinary course of business, property of the estate . . . ."

4.In re Visteon Corp., 2014 WL 4244022, at *1.

5.The UAW represented retirees at Visteon's plants in Canovanas, Puerto Rico and Lansdale, Pennsylvania ("North Penn"). Id. at *1. The IUE represented retirees from Visteon's plants in Connersville and Bedford, Indiana. At the time of the bankruptcy, all plants were closed, except for the North Penn plant. Id.

6.Section 1114 of the Bankruptcy Code contains certain protections for the insurance benefits of retired employees.

7.Id. at *1.

8.Id.

9.See In re Visteon Corp., 612 F.3d 210 (3d Cir. 2010).

10.In re Visteon Corp., 2014 WL 4244022, at *1-2.

11.Id. at *2.The confirmed plan reserved Visteon's right to terminate retiree benefits after emerging from bankruptcy (which it later did although that is not the subject of the appeal here).

12.Notably, the Bankruptcy Court "carved out" the benefits for the retirees of the North Penn plant as that plant was subject to a collective bargaining agreement and thereafter a closure agreement. Id. at *1. This "carve out" was also the subject of an appeal by the UAW but the Court held that the decision to "carve out" the North Penn retirees from the termination order was correct. Id. at *6-7.

13.Id. at *2 (quoting EF Operating Corp. v. Am. Bldgs., 993 F.2d 1046, 1048 (3d Cir. 1993)).

14.Id. (quoting In re Taylor, 655 F.3d 274, 287 (3d Cir. 2011)).

15.Id. (quoting Ackermann v. United States, 340 U.S. 193, 198 (1950)).

16.Id. at *3 (discussing and quoting Ackermann, 340 U.S. at 197, 200).

17.Id. at *3.

18.Id. (internal citation omitted).

19.Id. at *3 (quoting Federated Dep't Stores, Inc. v. Moitie, 452 U.S. 394, 400 (1981)). The Court identified what it characterized as the sole exception to the rule that to obtain relief a party must appeal as "where the disposition as to one party is inextricably intertwined with the interests of a nonappealing party" and it is "impossible to grant relief to one party without granting relief to the other." But the Court held that this exception was inapplicable here because "it is possible to grant relief to IUE retirees without also granting it to UAW retirees." Id. at *4 (internal citations omitted).

20.Id. at *4.

21.Id. at *4-5. "The UAW has represented in court filings that '[a]t all relevant times during [Visteon's] chapter 11 proceedings, the UAW has been the authorized representative of Visteon's former hourly employees . . . and other individuals at Visteon's former Caribbean facility in Puerto Rico, and its North Penn facility . . . who may have a claim against Visteon arising from any . . . agreements for the payment of retiree benefits.'" Id. at *5.

22.Id. at *4.

23.Id. at *5.

24.Id. (quoting In re Pillowtex, Inc., 304 F.3d 246, 250 (3d Cir. 2002)).

25.Id. at *5-6.

26.Id. at *7-8. The Chief Judge concurred with the conclusion that the North Penn settlement agreement precludes relief. Id. at *8.

27.Id. at *8.

28.Id.

This article is designed to give general information on the developments covered, not to serve as legal advice related to specific situations or as a legal opinion. Counsel should be consulted for legal advice.