PROTECTING RETIREE WELFARE BENEFITS DURING BANKRUPTCY: THE EVOLUTION OF A PROTECTIONIST READING OF § 1114

Samantha I. Kent, Emory University School of Law

Abstract

In 1988, Congress acted to protect retirees by passing the Retiree Benefits Bankruptcy Protection Act after 78,000 retirees’ health and welfare benefits were terminated after their employer filed for Bankruptcy. After public outrage and hasty Congressional response, the Retiree Benefits Bankruptcy Protection Act added § 1114 into the Bankruptcy Code, which expressly prohibits debtors and trustees from modifying or terminating any retiree benefits without following a proscribed set of procedures.

After its incorporation into the Bankruptcy Code in 1988, the statute was challenged and defined in the LTV Bankruptcy case, In re Chateaugay. The court held that § 1114 does not apply to benefits that are contractually terminable outside of bankruptcy. Since then, the majority of courts have followed this minimalist reasoning and continued to restrict the application of § 1114, rendering it virtually powerless to protect retirees. Recently, however, in In re Visteon, the Court of Appeals for the Third Circuit removed itself from the shadow of Chateaugay and broadened the scope of § 1114 protection by holding that it applies regardless of whether or not retiree benefits are terminable outside of bankruptcy. Thus, for the first time a Federal Circuit Court applied § 1114 according to Congressional intent and did not restrict the statute’s application based on the Chateaugay precedent and personal biases as to the statute’s appropriate operation. This interpretation leads to the proper application of § 1114. Based on the legislative history of § 1114, the uniqueness of retirees as a class, and the inadequacy of applicable nonbrankruptcy law, it is apparent that § 1114 should be applied uniformly to protect all retiree benefits regardless of contractual rights outside of bankruptcy.