UNION GAVE UP $450 MILLION IN RETIREE BENEFITS IN SETTLEMENT AGREEMENT AFTER BANKRUPTCY OF GM

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Did General Motors, LLC manage to get rid of $450 million in liability to retirees of the shuttered Delphi auto parts plant shortly after the auto giant’s own bailout from bankruptcy by U.S. taxpayers in 2009?

A recent unpublished decision of the U.S. Court of Appeals for the Sixth Circuit found that a 2009 settlement agreement with the United Autoworkers means the company is no longer on the hook. Auto Workers v. Gen. Motors, LLC, 203 LRRM XXXX, 2015 BL 148450 (6th Cir. 2015).

Delphi filed for bankruptcy protection in 2005 following its sale by GM’s predecessor—fondly called “Old GM” by the court—in 1999.

In 2007, Delphi, the union and Old GM—which was Delphi’s most important creditor—entered into a memorandum agreement in which Old GM promised to make a one-time contribution of $450 million to a voluntary employees’ beneficiary association for the retirees.

Then in 2008, following a suit by retirees, Old GM signed a settlement agreement that transferred responsibility for retiree health benefits to a new VEBA.

On June 1, 2009, Old GM filed for Chapter 11 protection.

Later the same month, Old GM, related businesses and the restructured General Motors, LLC—“New GM,” in the court’s vocabulary—signed a purchase agreement in which it assumed Old GM’s liabilities.

Five days after a federal bankruptcy court approved the sale, a second settlement agreement, which neither explicitly mentioned the $450 million payment nor explained the benefit of the bargain to the union, went into effect.

After Delphi sold off its core business and remaining assets on October 6, 2009, the union went to New GM for the $450 million.

New GM told it to take a hike.

On April 6, 2010, the union sued New GM in a federal district court in Michigan.

After some back-and-forth about whether the case belonged before it, the district court granted summary judgment to the auto maker, finding that New GM never assumed Old GM’s obligation to pay the $450 million.

The union appealed, and the Sixth Circuit affirmed.

Unlike the district court, the Sixth Circuit first found that New GM did assume Old GM’s obligation in the June 2009 purchase agreement, which included all liabilities under the labor contract, defined broadly.

But the court went on to find that the parties’ second settlement agreement “extinguished” the obligation.

First, the court observed that the second settlement agreement provided that a new plan and new VEBA are the plan and trust “exclusively responsible for all Retiree Medical Benefits” for which New GM formerly would have been responsible.

But that wasn’t all.

The second settlement agreement also provided that all obligations of New GM that “in any way related to Retiree Medical benefits” are terminated.

How this language escaped the attention of the union’s negotiators is difficult to understand.

The Sixth Circuit noted that the union tried to shrug off the provisions as “belt-and-suspenders contract language,” a phrase that turned out to be ironically accurate in a moment of real belt-tightening. 

“To extend the UAW’s metaphor and implication,” the court observed, “if GM’s negotiators included this release language so that a court would not catch them with their pants down, they seem to have been wise to do so.”

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