224 F.3d 511 (6th Cir. 2000), 99-5476, In re Birmingham-Nashville Express v Birmingham Express

Docket Nº:99-5476
Citation:224 F.3d 511
Party Name:In re: Birmingham-Nashville Express, Inc., Debtor. Travelers Property Casualty Corporation, Appellant, v. Birmingham-Nashville Express, Inc., Appellee.
Case Date:August 01, 2000
Court:United States Courts of Appeals, Court of Appeals for the Sixth Circuit
 
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224 F.3d 511 (6th Cir. 2000)

In re: Birmingham-Nashville Express, Inc.,

Debtor.

Travelers Property Casualty Corporation,

Appellant,

v.

Birmingham-Nashville Express, Inc., Appellee.

No. 99-5476

United States Court of Appeals, Sixth Circuit

August 1, 2000

Argued: March 15, 2000

Appeal from the United States District Court for the Middle District of Tennessee at Nashville. No. 98-00497--Robert L. Echols, Chief District Judge.

Page 512

Eric G. Waxman, PHILLIPS, NIZER, BENJAMIN, KRIM & BALLON, Garden City, New York, C. Bennett Harrison, Jr., CORNELIUS & COLLINS, Nashville, Tennessee, for Appellant.

Barbara D. Holmes, Craig V. Gabbert, Jr., HARWELL, HOWARD, HYNE, GABBERT & MANNER, Nashville, Tennessee, for Appellee.

Before: RYAN, MOORE, and FARRIS[*], Circuit Judges.

OPINION

RYAN, Circuit Judge.

We must decide in this appeal whether a claim for unpaid workers' compensation insurance premiums owed by a bankrupt estate is entitled to priority under 11 U.S.C. § 507(a)(4). Both the bankruptcy court and the district court thought not, relegating the appellant, Travelers Property Casualty Corporation (TPCC), to the status of one among many general unsecured creditors of the bankrupt estate, Birmingham-Nashville Express, Inc. (BNE). TPCC has appealed the lower court orders and we hold, in this question of first impression in this court, that a claim for unpaid workers' compensation insurance premiums is not entitled to section 507(a)(4) priority status. We must, therefore, affirm.

I.

Under Tennessee law, all Tennessee corporations must purchase insurance to cover any liability for workers' compensation claims or demonstrate to the Commissioner of Commerce the financial ability to cover all claims that may arise. Tenn.

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Code Ann. § 50-6-405. BNE, a freight carrier incorporated in Tennessee, fulfilled its statutory obligation by purchasing workers' compensation insurance from TPCC.

On December 20, 1996, BNE filed a chapter 11 bankruptcy petition to reorganize its operation. It is undisputed that for six months before filing its petition BNE failed to pay insurance premiums owed to TPCC. TPCC submitted a proof of claim to the bankruptcy court, asserting that premiums unpaid 180 days prior to the filing of BNE's petition constituted an unsecured claim entitled to priority under 11 U.S.C. § 507(a)(4). BNE responded that TPCC's claim was not entitled to section 507(a)(4) priority and this suit followed.

Section 507(a)(4), the dollar amounts of which were amended in 1998, provides:

The following expenses and claims have priority in the following order:

. . .

[f]ourth, allowed unsecured claims for contributions to an employee benefit plan--

(A)arising from services rendered within 180 days before the date of the filing of the petition or date of the cessation of the debtor's business, whichever occurs first; but only

(B)for each such plan, to the extent of--

(i)the number of employees covered by each such plan multiplied by $4,000; less

(ii)the aggregate amount paid to such employees under paragraph (3) of this subsection, plus the aggregate amount paid by the estate on behalf of such employees to any other employee benefit plan.

11 U.S.C. § 507(a)(4) (West 1993 & Supp. 2000) (emphasis added) (footnote omitted).

After ruling in TPCC's favor on a procedural objection to TPCC's claim, the bankruptcy court held that TPCC's claim was not entitled priority. That court articulated three bases for its ruling. It held, first, that a "contribution" within the meaning of section 507(a)(4) must be "something given voluntarily to a common source." Because Tennessee law mandated the provision of some type of insurance to cover workers' compensation claims, the court concluded that BNE had performed no "voluntary act equating to a 'contribution.'" Second, the court held that a program said to constitute an "employee benefit plan" under section 507(a)(4) must "direct[ly] benefit" employees. In the bankruptcy court's opinion, workers' compensation insurance did not meet this criterion. Third, in deciding that TPCC's claim did not arise from "services rendered," the court stated:

Yet another requirement for priority treatment for [TPCC's] claim is that the contributions to the employee benefit plan "arise from services rendered." Accepting [TPCC's] argument would force this court to conclude that payment of the workers' compensation premium arose from services rendered. It seems clear that the unpaid premiums did not arise from "services rendered," but instead arose from the employer's failure to meet its obligations to [TPCC.]

Accordingly, the bankruptcy court dismissed TPCC's claim.

Pursuant to Federal Rule of Bankruptcy Procedure 8013, TPCC appealed to federal district court. The district court affirmed, echoing the rationale provided by its predecessor:

The Court . . . agrees . . . that "[a] 'contribution' is something given voluntarily to a common source. . . . The word 'contribution' generally connotes an optional choice, such as an employer's decision to provide fringe benefits like health, life or disability insurance." . . . In this case, the Debtor was statutorily obligated to provide a workers' compensation insurance program. "[S]ince workers' compensation benefits are a statutory requirement and not obtained

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through a collective bargaining, they cannot be considered a 'contribution' to an employee 'benefit plan.'"

The district court also agreed with the bankruptcy court that "workers' compensation insurance does not qualify as an employee benefit plan for purposes of section 507(a)(4)."

In this appeal, TPCC argues that there are numerous flaws in both lower court opinions. TPCC contends that the lower courts erred in restricting the term "contribution" to funds provided "voluntarily" because such a restriction is not entirely consistent with either the ordinary use of that term or the policies underlying section 507(a)(4). TPCC next maintains that, contrary to the bankruptcy court's opinion, workers' compensation insurance does provide "direct benefit[s]" to employees. Beyond challenging that aspect of the bankruptcy court's opinion, TPCC urges this court to read the definition of "employee benefit plan" provided in ERISA, which includes workers' compensation insurance, into section 507(a)(4) of the Bankruptcy Code. TPCC also contends that the bankruptcy court's construction of the term "services rendered" is illogical and will likely cause mischief in future cases.

BNE responds that the lower courts were correct that a "contribution" within the meaning of section 507(a)(4) must have been provided "voluntarily" by the contributor. BNE also cautions that incorporation of ERISA definitions for like terms into the Bankruptcy Code is unwise as those two bodies of legislation serve different purposes. Finally, BNE argues that, even if the bankruptcy court misconstrued the term "services rendered," such error does not alter the ultimate result in this case.

II.

The sole issue in this case is the meaning and effect of 11 U.S.C. § 507(a)(4), a pure question of law necessitating de novo review by this court. To repeat, that statute provides:

The following expenses and claims have priority in the following order:

. . .

[f]ourth, allowed unsecured claims for contributions to an employee benefit plan--

(A)arising from services rendered within 180 days before the date of the filing of the petition or date of the cessation of the debtor's business, whichever occurs first; but only

(B)for each such plan, to the extent of--

(i)the number of employees covered by each such plan multiplied by $4,000; less

(ii)the aggregate amount paid to such employees under paragraph (3) of this subsection, plus the aggregate amount paid by the estate on behalf of such employees to any other employee benefit plan.

11 U.S.C. § 507(a)(4) (West 1993 & Supp. 2000) (emphasis added) (footnote omitted). Questions as to the scope of section 507(a)(4) have proved troublesome to the federal courts primarily because Congress has not defined the terms "contribution," "employee benefit plan," or "services rendered" and, as of this writing, the Supreme Court has not interpreted this language either.

Section 507(a)(4) is Congress's 1978 response to United States v. Embassy Restaurant, Inc., 359 U.S. 29 (1959), and Joint Industry Board v. United States, 391 U.S. 224 (1968). Those cases established that 11 U.S.C. § 104(a)(2) (repealed 1978), the predecessor of section 507(a)(4), did not grant priority to claims for unpaid employer contributions to union-operated welfare and annuity funds. See Joint Indus., 391 U.S. at 228-29; Embassy Restaurant, 359 U.S. at 33-35. No one disputes that subsequently enacted section 507(a)(4) provides that the

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claims of the type treated by the Supreme Court in those cases are now entitled to priority. Thus, it is clear that an unsecured...

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