Law360: Chemtura Bankruptcy and Uniroyal Retirees

Chemtura Retirees Win Surprise Reprieve

By Samuel Howard, April 22, 2010

Law360, New York (April 22, 2010) — In a dramatic turnaround, the federal judge overseeing Chemtura Corp.’s bankruptcy has granted a stay to hundreds of Uniroyal Inc. retirees facing the loss of their health insurance and suggested that the class of retirees, who contend that their benefits are vested, may not need to rely on an appeal to get their day in court.

On Wednesday, Judge Robert E. Gerber of the U.S. Bankruptcy Court for the Southern District of New York admitted that he made a mistake when denying the stay and ordered reargument of the issue in light of the fact that Chemtura seems flush enough to provide medical benefits to roughly 600 white collar retirees contending that those benefits are vested.

“If the debtors could afford to pay over $1 million per month in incentive compensation to their most senior executives, opposing counsel could be heard to argue that the debtors’ claims of prejudice by paying $160,000 per month in retiree health benefits during the pendency of appeal would ring hollow,” Judge Gerber said.

The immediate effect of the ruling is to preserve — at least for the meantime — benefits that Chemtura intended to terminate Wednesday, but Judge Gerber also indicated that he would reconsider the larger issue on appeal, whether hundreds of retirees can in fact join retiree John Prior’s fight for allegedly vested benefits.

In a daunting statement for Chemtura, the court said it is “possible, after reargument or in further proceedings, that the court will vacate the defaults and give the other Uniroyal retirees their day in court.”

The dispute stems from the fact that Chemtura gave retirees just a matter of days to formally object to the debtors’ move to terminate retirement benefits for Uniroyal employees hired before 1985.

While John Prior responded to the motion in November 2009, Judge Gerber excluded roughly 600 hundred other Uniroyal retirees who were not as prompt. In January, Judge Gerber refused to reconsider that decision, but the ruling only appeared on the docket on April 5, leading the retirees to appeal the ruling and seek a stay of the termination order.

In addition to calling for reargument, which may be undertaken sua sponte, Judge Gerber voiced concerns about Chemtura’s timing of the termination notice and indicated that he will revisit whether the class of retirees should in fact be included in the dispute without involving the appeals court.

The court will need to know how long Chemtura was contemplating terminating the benefits and why the debtor gave retirees only 13 days to respond to the termination motion before determining if the retirees deserve a day in court, according to the opinion.

“The court has such serious concerns as to these issues that pending the court’s consideration of the reargument motion, the debtors’ implementation of the changes in the Uniroyal retirement benefits will be, and hereby is, stayed.”

Sergei Lemberg, attorney for the retirees, applauded the court’s unexpected move to correct its ruling and said it bodes well for the retirees as they try to prevent Chemtura from scrapping their health insurance.

“We are delighted the court felt it’s appropriate to reconsider on its own accord its denial of our application for a stay and that the court also appears willing to reconsider its decision to deny retirees the right to join in and argue for benefits that have vested,” Lemberg said.

Representatives for Chemtura could not be reached for comment Thursday.

The retirees are represented by Lemberg & Associates LLC.

Chemtura is represented by Kirkland & Ellis LLP and Duane Morris LLP.

The case is In re: Chemtura Corp., case number 09-11233, in the U.S. Bankruptcy Court for the Southern District of New York.

Original story: At Law360