Firm Represents 29,000 Retirees in Sears Chapter 11 Proceeding

The Firm serves as co-counsel to the Official Retiree Committee for Sears Holdings Corporation in its Chapter 11 proceedings in the Southern District of New York. When Sears filed Chapter 11 at the end of 2018, it immediately began massive cost cutting actions. Eying the substantial premiums it was paying for an insurance benefit for some 29,000 retirees, the Sears Board of Directors authorized the termination of the benefits. The unilateral termination breached a class action settlement in which Sears agreed to never reduce or terminate the retirees’ life insurance, but Sears ignored the fact that the settlement rendered the benefits vested. Instead, the company treated them as terminable at will.

The Firm was contacted to explore the retirees’ options, but Sears was already moving quickly towards confirmation of its liquidating plan of reorganization that would bar the retirees from receiving any compensation on account of their lost benefits. The Firm immediately recognized that Sears was violating Section 1114 of the Bankruptcy Code, which requires a debtor to terminate vested benefits only after it has attempted in good faith to negotiate a resolution with a representative of the retirees. Moreover, Section 1114 requires an order of the Bankruptcy Court after notice and opportunity to be heard by the retirees or the representatives before such termination becomes effective.

After months of litigation and negotiations, the Firm’s efforts were entirely successful. Sears abandoned its attempt to validate its unilateral termination and agreed to termination only being effective as of the date the Court ordered it. More importantly, Sears agreed to establish a $3 million reserve to pay beneficiaries of deceased retirees that were not covered by insurance in the gap period between improper termination and the Court-approved termination date. Finally, all remaining retirees were entitled to file claims for compensation as unsecured creditors and participate in the Chapter 11 case. As a result, tens of thousands of retirees and beneficiaries will receive some compensation for the loss of benefits.

In re Sears Holdings Corporation, Case No. 18-23538 (RDD) (Bankr. S.D.N.Y.)