Judge: Former Bowe Bell & Howell must negotiate with retirees

By Jim Witters

Wilmington, Del., Aug. 1 - Mail Systems Liquidation, formerly Bowe Bell & Howell Co., and its creditors must negotiate with a retiree committee over a $7.3 million fund established to offset health care costs for the retirees, their spouses and other dependents, a judge ruled Monday in U.S. Bankruptcy Court for the District of Delaware.

Judge Peter J. Walsh said the escrow fund set up in 2008 to disburse money to the retirees clearly was linked to Bowe Bell's previous health-care coverage plan and therefore qualified under Section 1114 of the bankruptcy code. Section 1114 requires a debtor to continue to pay retiree benefits after a bankruptcy filing, if certain conditions are met.

After Bowe Bell ended its health-care and dental plan for retirees in 2001, the company and the retirees sued in Illinois over whether the company had the right to unilaterally terminate the plan. Those lawsuits went to mediation, where the retirees claimed the future value of their benefits was $42 million.

In August 2008, the parties reached a settlement in which Bowe Bell agreed to pay $6 million plus 6¼% interest in 32 quarterly installments. The quarterly payments went into an escrow account and then were disbursed to the 130 retirees in equal shares.

When Bowe Bell filed for bankruptcy in April, the company stopped making the quarterly escrow payments.

Jon D. Cohen, representing the retirees, said Monday that the company and the creditors committee divided the proceeds from the sale of Bowe Bell to Versa Capital Management Inc. and co-investment partner Access Value Investors Inc. Left out were the retirees, he said.

Bradford J. Sandler, representing the unsecured creditors committee, said the retirees had a representative on the committee who raised no objection to the global settlement agreement that excluded the retirees. He said no retirees objected when the settlement was announced.

"Had the committee known that the retirees were going to take this tactic, we would have negotiated differently," Sandler said.

Mark D. Collins, representing Bowe Bell, argued that the $6 million and interest was a cash settlement to end litigation, not a continuation of the health-care benefits plan the company ended in 2001. The 2008 settlement contained no provision requiring the disbursements be used to defray health-care costs, he said.

Collins also argued that to qualify under Section 1114, the plan must have been in effect at the time of the bankruptcy filing. It was not.

Judge Walsh said the escrow account derived from the benefit plan in that it was designed to close out that plan. And he said there is a clear link between the 2008 settlement and the lawsuits that retirees filed under the Employee Retirement Income Security Act.

The judge ordered the U.S. Trustee to appoint an official non-union retiree committee "to negotiate for the limited resources that remain."

"The retirees have a right to representation here," Walsh said.

But he stopped short of agreeing to Cohen's request that the retirees' claim be classified as a priority administrative claim.

Collins and Sandler said about $700,000 remains in the wind-down fund.

Judge Walsh said the only way to ensure the retirees received any money would be for Versa to "make concessions," but he acknowledged there is no way to force that to happen.

Bowe Bell & Howell, a Wheeling, Ill., provider of high-performance document management services, filed for bankruptcy on April 18. The Chapter 11 case number is 11-11187.

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