141 F.Supp. 463 (S.D.N.Y. 1956), In re Sleep Products Inc.
|Citation:||141 F.Supp. 463|
|Party Name:||In the Matter of SLEEP PRODUCTS, Inc., Bankrupt.|
|Case Date:||March 15, 1956|
|Court:||United States District Courts, 2nd Circuit, Southern District of New York|
Rabinowitz & Boudin, New York City, for claimant-petitioner Local 140 Security Plan.
Meyer Lindenbaum, New York City, for trustee. Booth, Lipton & Lipton Edgar H. Booth, New York City, of counsel.
Paul W. Williams, U.S. Atty., S.D. New York, New York City, for the United States. William Stackpole, New York City, of counsel.
Peter Campbell Brown, Corp. Counsel, New York City, for City of New York. Stanley Buchsbaum, Bernard H. Sherris and John J. Lyden, New York City, of counsel.
HERLANDS, District Judge.
The fundamental question raised on this proceeding involves the scope of the word 'wages' as used in section 64, sub. a(2) of the Bankruptcy Act, Title 11 U.S.C.A. § 104, sub. a(2) 1 which grants priority to wage claims against a bankrupt. Do contributions required to be made by an employer to a union welfare fund pursuant to a collective bargaining agreement constitute 'wages' within the meaning of that statutory provision, entitling a claim for such unpaid contributions to priority as a wage claim when the employer becomes bankrupt?
That question must be answered in the negative, for the reasons set forth in this opinion.
The claim involved is that of a union welfare fund known as the Local 140 Security Fund (referred to in this opinion as 'the Fund'). The bankrupt-employer is Sleep Products, Inc. A collective bargaining agreement, dated August 15, 1952, had been signed by the employer and the Bedding, Curtain and Drapery Workers' Union, Local 140, of the United Furniture Workers of America, C.I.O. (referred to in this opinion as 'Local 140').
Pursuant to this agreement, the employer was required to make monthly payments computed at six percent (later six and one-half percent) of the gross monthly payroll of the employees in the bargaining unit. These payments were to be made to the Fund. For the three-month period immediately preceding the filing of the bankruptcy petition, the employer failed to pay $993.75 to the Fund; and that is the amount of the claim, as amended.
The trustee in bankruptcy moved before the referee to expunge and disallow the claim of the Fund as a priority claim for wages. The referee, by order dated November 16, 1955, granted the trustee's motion. The Fund is now appealing, seeking to review the order of the referee which disallowed priority to the Fund's claim. The United States of America and The City of New York, as tax creditors of the bankrupt employer, have appeared in support of the referee's order.
In order to obtain priority status as a claim for 'wages,' a claim must comply with the following explicit statutory requirements:
1. It must be a claim for 'wages.'
2. It may not exceed $600 'to each claimant'.
3. It must have been 'earned' within three months before the date of the commencement of the bankruptcy proceeding.
4. It must be due to certain specified classes of employees-- 'workmen, servants, clerks, or traveling or city salesmen on salary or commission basis.'
'Wages' for which a prior claim may be made under the statute 'are closely
circumscribed by express provisions of the Act,' and each one of the statutory 'qualifications must be satisfied before priority entails.' Collier on Bankruptcy (14th Ed. 1941) p. 2083.
To determine whether the claim in this case satisfies the statutory definition, it is necessary to consider its origin and nature. 2
The Fund was organized on August 1, 1950 under a trust agreement. By the terms of that agreement, the Fund undertook to finance various types of social insurance for employees in the bedding industry, including but not limited to life insurance, accident and health insurance, insurance for medical care and hospitalization, and disability benefit insurance.
Since the date of the Fund's organization, various employers have entered into collective bargaining agreements with Local 140. Such employers have been required to make contributions to the Fund, based on the gross monthly payroll of employees covered by said collective bargaining agreements.
On March 13, 1952, another fund, known as the Local 140 Pension Fund, was organized. This pension fund was created for the purpose of financing the payment of retirement pensions for employees in the bedding industry. The claimant Fund has been paying over to the pension fund certain portions of the moneys received from employers.
To be eligible for pension benefits, an employee must be employed by an employer who is covered by a collective bargaining agreement with Local 140, for a specified number of years prior to the date of retirement.
Under the express terms of the trust agreements setting up the claimant Fund and the pension fund, 'neither the employer nor the individual employee have any right, title or interest in or to any part of the trust estate or fund so created, except such rights as might accrue to an employee under an insurance policy or for other welfare benefits' (Stipulation of Facts, '11'.)
By virtue of the disability benefit insurance terms of the claimant's trust agreement, employers who have entered into collective bargaining agreements with Local 140, providing for contributions to the Fund, have received exemption from the State of New York from paying the taxes provided by the Disability Benefits Law, Workmen's Compensation
Law, McK.Consol.Laws, c. 67, Article 9.
Under the express terms of the trust agreements setting up the claimant Fund and the pension fund, 'no employee has an option to receive any part of the contribution of the employer in lieu of the insurance or pension benefits provided by the trustees' (Stipulation of Facts, '12').
No employee has the right to receive a cash consideration in lieu of the stipulated benefits, either upon the termination of the Fund or his withdrawal, through severance of employment or otherwise (Declaration of Trust, August 1 1950, paragraph '4'; Declaration of Trust, March 13, 1952, paragraph '4').
'The employer's contribution to the claimant is not subject to the payment of income and/or withholding taxes by the individual employee' (Stipulation of Facts, '13').
The collective bargaining agreement with Local 140 provides (paragraph 'Thirty-Third') that 'the Employer shall be under no obligation to see to the application of monies paid to the Local 140 Security Fund pursuant to this paragraph for the purposes and uses above mentioned.' This paragraph also provides that, if the employer should fail to pay the moneys due to the Fund 'the Union shall be entitled to liquidated damages in the sum of six (6%) per cent of the amount due in addition thereto." (Emphasis supplied.)
The tax treatment accorded the employer's contributions to the Fund indicates persuasively that such contributions are not to be treated as 'wages' received by the employees. Individual employees are expressly exempted from paying an income tax on 'contributions by the employer to accident or health plans for compensation (through insurance or otherwise) to his employees for personal injuries or sickness.' Int.Rev.Code 1954, § 106, 26 U.S.C.A. § 106; C.C.H. Income Tax (1956) vol. 1, paragraph 1050, 'Contributions By Employer To Accident And Health Plans.'
The employer is not required to withhold at the source any portion of such contribution to the Fund. C.B.-1-1945, p. 90, I.T. 3738.
Nor can the employer's payments be construed as taxable to the employee on constructive receipt grounds. Income Tax Regulations, Reg. 118, § 39.42-2. Cf. Sloane v. Commissioner of Int. Revenue, 6...
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