Retiree's SERP Plan Was Not An Executory Contract and Was Not A Retiree Benefits Plan Under 11 U.S.C. § 1114

Posted on December 21, 2007 by MorrisJames Delaware

In re Exide Techs., No. 02-11125 (KJC), 2007 WL 4268763, – B.R. – (Bankr. D. Del. Dec. 5, 2007) (Judge Kevin J. Carey)

A former executive vice-president of the debtor, Exide Technologies, filed a motion to enforce the debtor’s plan of reorganization, arguing that a retirement payment program that he entered into with the debtor was an executory contract that the debtor assumed under its plan.  The United States Bankruptcy Court for the District of Delaware denied the motion, finding that the contract between the parties to enter into the program lacked mutuality of obligation because the only remaining obligations thereunder belonged to the debtor.  Accordingly, it was not an executory contract that could be assumed.  The Court also determined that the plan was not a retiree benefits program under 11 U.S.C. § 1114 that could not be terminated by the debtor.

Movant William J. Rankin was an Executive Vice President of Exide Technologies, Inc.  Rankin retired in 1999 after more than ten years of service.  One-and-a-half years before he retired, Rankin entered into a Selective Executive Retirement Program, or SERP, with Exide under which Exide promised to pay Rankin $57,500 per year for ten years following Rankin’s retirement.  Rankin received three payments under the SERP, but when Exide filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware in 2002, it discontinued the payment.

Rankin filed a motion to enforce Exide’s plan as it related to his SERP.  Rankin contended that he was owed seven additional payments, for a total of $402,500, and filed a proof of claim for that amount plus additional wage and expense reimbursement claims.  Rankin argued that the SERP was a retirement plan, and that under the debtor’s plan of reorganization, all retirement programs were deemed to be assumed executory contracts.  He therefore argued that the debtor was required to cure all defaults under the SERP and resume making payments.

Applying the Countryman definition of an “executory contract,” and referring to similar cases, the Court held that deferred compensation agreements or retirement agreements like the SERP are non-executory if, at the time the bankruptcy case was filed, the executive was already retired and owed no further duties to the debtor.  In this case, Rankin’s rights under the SERP vested prepetition, and Exide entered into the agreement to award Rankin for past service.  Rankin was not required to render any further service to Exide.  Instead, the only party with remaining obligations under the SERP was the debtor, which was required to make annual payments.  Therefore, the SERP lacked mutuality of obligation, and was non-executory.

Because the SERP was non-executory, the debtor could not assume it, as the Bankruptcy Code lacks any provisions permitting the debtor to assume any contract that is not executory.  Moreover, the debtor was not free to deem a non-executory contract as an executory one, so as to permit assumption.

Rankin also argued that the SERP could not be terminated or modified on the basis that it was a “retiree benefits” program under Bankruptcy Code section 1114.  Under that section, the debtor cannot modify or terminate retirement benefits unilaterally, unless the retiree agrees or the court orders modification after determining that it is necessary to the debtor’s reorganization and is equitable.  However, the Court found that the SERP was not a retiree benefit program because payments thereunder were not for medical, surgical or hospital care benefits, or a death benefit.  Plans that provide deferred compensation or benefits due upon retirement are not protected by section 1114.  Rankin argued that because the SERP provided that any funds due thereunder would be paid to his named beneficiary in the event of his death, it was a death benefit program.  The Court disagreed, noting that the SERP merely provided an alternative arrangement for payment if he died before distributions were complete.  It did not provide for additional benefits upon Rankin’s death.

For all these reasons, the Court denied Rankin’s motion.

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