In re Robert Plan Corp.

• Decision Date: 20 August 2012
• Docket Number: Nos. 8–08–74573–reg, 8–08–74575–reg.,s. 8–08–74573–reg, 8–08–74575–reg.
• Parties: In the Matter of The ROBERT PLAN CORPORATION, et al., Debtors.
• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Eastern District of New York

493 B.R. 674

In the Matter of The ROBERT PLAN CORPORATION, et al., Debtors.

Nos. 8–08–74573–reg, 8–08–74575–reg.

United States Bankruptcy Court, E.D. New York.

Aug. 20, 2012.

Harold S. Berzow, Ruskin Moscou Faltischek, Uniondale, NY, for Debtor.

Steven B Sheinwald, Fletcher Strong, Kirschenbaum & Kirschenbaum, PC, Garden City, NY, for Trustee.

Memorandum Decision

ROBERT E. GROSSMAN, Bankruptcy Judge.

Kenneth Kirschenbaum, the Chapter 7 Trustee (“Trustee”) in the substantively consolidated cases of The Robert Plan Corporation (“RPC”) and The Robert Plan of New York Corporation (“RPNY”) (collectively, the “Debtors”) seeks entry of an order awarding fees for services rendered by the Trustee and his duly retained professionals in connection with the Trustee's administration of an ERISA plan (“Plan”) for the benefit of the Debtors' former employees. The Trustee filed an order scheduling a hearing on shortened notice to consider applications by (i) the Trustee, for a second interim award of compensation for services rendered as Plan administrator, (ii) Kirschenbaum & Kirschenbaum (“K & K”), attorneys for the Trustee, for a second interim award of compensation for services rendered as counsel to the Trustee while acting as Plan administrator, (iii) David J. Witz, AIF (“Witz”), pension consultant to the Trustee, for a final allowance of compensation for services rendered to the Trustee, and (iv) Travis L. Whitfield, CPA, PLLC (“Whitfield”), independent auditor to the Trustee, for a final allowance of compensation (collectively, the “Applications”). The Trustee declares he is ready to terminate the Plan after fully administering it, and intends to use funds remaining in the Plan, which are not property of the Debtors' estate, to pay fees and commissions awarded pursuant to the Applications. Because there are not sufficient funds in the Plan account to pay the contemplated awards to all professionals the Trustee has disclosed his intent to apply funds of the bankruptcy estate to make up the difference.

The U.S. Department of Labor (“DOL”) objects to the Applications on various grounds. DOL asserts that this Court may award fees so long as those fees are paid solely from property of the Debtors' estate. However, DOL argues that this Court lacks jurisdiction to award any fees that will be satisfied from Plan assets. DOL alleges that this Court previously recognized in a written decision that it lacks jurisdiction to award fees from Plan assets and is restricted to awarding compensation under the Bankruptcy Code, and then only from funds constituting property of the Debtors' bankruptcy estate. DOL concludes therefore that any award of fees or compensation by this Court where Plan assets may be used to pay all or part of such award is not binding on DOL or any other entity. DOL also has specific objections to the Applications, and seeks reductions as to each request except for the Witz application.

One of the flaws in DOL's argument is that it is premised on a misunderstanding of the Court's previous decision. In In re The Robert Plan Corp., 439 B.R. 29 (Bankr.E.D.N.Y.2010), this Court unambiguously concluded that it maintains core jurisdiction to authorize the Trustee to retain professionals to assist the Trustee in performing his duties under Bankruptcy Code § 704(a)(11). The source of the Trustee's obligation to act as Plan administrator is found in the Bankruptcy Code. The fact that the Plan assets administered by the Trustee are not property of the Debtors' estate has no bearing on the Court's jurisdiction over the Trustee when acting as the Plan administrator. The Court also ruled that it has core jurisdictionto award fees to the Trustee and his duly retained professionals in connection with the Trustee's acts as Plan administrator. Whether the payments are made from the Plan assets or Bankruptcy estate assets do not in any way alter the legal analysis supporting the Court's ruling, a ruling that is now the law of the case. Any reference to the requirements applicable to compensation under the ERISA statutes was not meant to limit the Bankruptcy Court's jurisdiction to award fees to a Trustee, whether from Plan assets or assets of the Bankruptcy estate. Furthermore, Bankruptcy Code §§ 326 and 330, as applicable when determining the amount of fees to award to the Trustee and his professionals, do not conflict with ERISA rules governing compensation of a Trustee as Plan administrator. ERISA has applicable regulations regarding reasonable and appropriate compensation for the Trustee and his professionals, but there is no ERISA statute that requires a Chapter 7 trustee or any trustee to seek a court's approval prior to the taking of fees. This Court's prior ruling makes clear however, that a Chapter 7 Trustee must seek court approval of his compensation. Any such approval will only be granted after a hearing on notice to all parties required under Fed. R. Bankr.P.2002(a)(6), and upon a finding that the compensation sought complies with the Bankruptcy Code, which in turn requires a finding that the amount awarded is reasonable. This procedure harmonizes with the applicable ERISA laws regarding compensation of a Plan administrator and his professionals. Congress could have exempted a Chapter 7 trustee from these requirements when it enacted Bankruptcy Code § 704(a)(11), but it chose not to do so. Therefore, it is clear to this Court that (i) it has jurisdiction to award fees to the Trustee and his professionals, and (ii) there is no ERISA statute that conflicts with the requirement under the Bankruptcy Code that the Trustee and his professionals seek Bankruptcy Court approval of their fees.

Procedural History

On August 25, 2008 (the “Petition Date”), the Debtors filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”). On January 19, 2010, the Debtors' cases were converted to cases under Chapter 7 of the Bankruptcy Code. The Trustee was duly appointed and qualified as acting trustee for both cases. By order entered on September 9, 2010, the Debtors' cases were substantively consolidated. On November 9, 2011, the Trustee filed the Applications. On November 10, 2011, the Court entered an order scheduling a hearing on shortened notice to consider the Applications. On December 7, 2011, DOL filed an objection to the Applications. On December 13, 2011, the Trustee filed a Reply. Hearings were held before the Court on December 14, 2011 and February 2, 2012. Thereafter, the matter was marked submitted.

Facts

The Plan is sponsored by RPC for the benefit of its employees and is a defined contribution plan governed by the terms of ERISA. Section 19.05 of the Plan provides as follows:

Costs of Administration. Unless some or all are paid by the Employer, all reasonable costs and expenses (including legal, accounting, and employee communications fees) incurred by the Administrator and the Trustee in administering the Plan and Trust may be paid from the forfeitures (if any) resulting under Section 11.08, or from the remaining Trust Fund. All such costs and expenses paid from the Trust Fund shall, unless allocable to the Accounts of particular Participants, be charged against the Accountsof all Participants on a pro rata basis or in such other reasonable manner as may be directed by the Employer and accepted by the Trustee.

Prior to the Petition Date, RPC was the Plan administrator. Upon conversion of the Debtors' cases and appointment of the Trustee, the Trustee was required, under Bankruptcy Code § 704(a)(11), to continue to perform the obligations required of the Plan administrator. By application dated May 6, 2010, the Trustee sought Court authorization to act as Plan administrator at an hourly rate of $500.00, and sought Court authorization to retain the services of Witz as pension consultant, K & K as legal counsel to the Trustee as Plan administrator, and Whitfield as independent auditor (“First Application”). By supplemental application filed on June 10, 2010, the Trustee sought authorization to pay the above-named entities and individuals up to certain specified amounts subject to his discretion from the Plan funds (“Second Application”). On August 6, 2010, the Trustee filed a supplemental affirmation in support of the Second Application, wherein the Trustee sought authorization to take whatever action the Trustee deems appropriate to bring the Plan into compliance with applicable rules and regulations, and to terminate the Plan (“Second Amended Application”). In order to fund the costs associated with bringing the Plan into compliance with applicable rules and regulations, restore funds to certain participants' accounts, file the necessary tax returns and to proceed to terminate the Plan, the Trustee directed that each Plan participant's account be surcharged three percent, which funds have been placed into an account called a “Pguy Account.” Pursuant to the Second Amended Application, the Trustee sought authorization to pay himself $40,940.00 on an interim basis as compensation for services rendered as Plan administrator. DOL objected to the Trustee's request for Court authorization to pay the Trustee and to retain and pay professionals on the basis that this Court lacks jurisdiction over the Trustee's actions when he acts as Plan administrator. In a memorandum decision dated October 26, 2010, this Court held that the Trustee, when acting as Plan administrator pursuant to Bankruptcy Code § 704(a)(11), is subject to the Bankruptcy Court's core jurisdiction. In re The Robert Plan Corp., 439 B.R. 29 (Bankr.E.D.N.Y.2010). This Court further ruled that it has jurisdiction over any request by the Trustee to retain and pay professionals to assist the Trustee in carrying out his duties as Plan administrator. Id. at 45. As a creature of the Bankruptcy Code, the Trustee exercises a core function when administering the Plan assets, and the fact that the Plan...