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...