62 F.3d 224 (8th Cir. 1995), 94-4076, In re HLM Corp.

Docket Nº:94-4076.
Citation:62 F.3d 224
Party Name:In re HLM CORPORATION, Debtor. EMPLOYERS INSURANCE OF WAUSAU, INC., Plaintiff-Appellant, v. James E. RAMETTE, Trustee of the Bankruptcy Estate of HLM Corporation, Defendant-Appellee.
Case Date:July 28, 1995
Court:United States Courts of Appeals, Court of Appeals for the Eighth Circuit

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62 F.3d 224 (8th Cir. 1995)




James E. RAMETTE, Trustee of the Bankruptcy Estate of HLM

Corporation, Defendant-Appellee.

No. 94-4076.

United States Court of Appeals, Eighth Circuit

July 28, 1995

Submitted June 12, 1995.

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Rodney Honkanen, Minneapolis, MN, argued (Robert A. Judd, on the brief), for appellant.

Randall L. Seaver, Minneapolis, MN, argued, for appellee.

Before BEAM, Circuit Judge, BRIGHT, Senior Circuit Judge and MURPHY, Circuit Judge.

BRIGHT, Senior Circuit Judge.

Employers Insurance of Wausau ("Wausau") provided workers' compensation insurance to the HLM Corporation pursuant to Minnesota's Assigned Risk Plan. Minn.Stat.Ann. Secs. 79.251-.252 (West 1986 & Supp.1995). That plan offers workers' compensation insurance to Minnesota employers who cannot obtain coverage through traditional market channels. Id.

This controversy arose when HLM Corporation became bankrupt owing Wausau substantial amounts of money for unpaid insurance premiums. Relying on Sec. 507(a)(4) of the Bankruptcy Code, Wausau sought a priority status for these unpaid premiums incurred within 180 days of the bankruptcy petition. 11 U.S.C. Sec. 507(a)(4) (1988) (amended 1994). Section 507(a)(4) grants a fourth level priority status for "contributions to an employee benefit plan--arising from services rendered within 180 days before the date of the filing." 1

The bankruptcy court, 2 on the objection of the trustee, denied Wausau's claim. In re HLM Corp., 165 B.R. 38 (Bankr.D.Minn.1994). Wausau appealed to the district court, but that court 3 affirmed. Employers Ins. of Wausau v. Ramette, 183 B.R. 852 (D.Minn.1994). Wausau appealed. We agree with the district judge and we affirm.

While this is a case of first impression in this circuit, we deem it unnecessary to write at length in light of the excellent analysis of the issue by the bankruptcy judge and the well-written opinion by the district court.

The Bankruptcy Code itself does not define the phrase "contributions to an employee benefit plan," nor does it offer a representative list of "contributions" that would be covered by the Code. Nevertheless, the legislative history is instructive and illuminating.

In referring to the legislative history of the Code section, the bankruptcy judge observed:

Section 507(a)(4) was included in the Code to overrule United States v. Embassy Restaurant, 359 U.S. 29 [79 S.Ct. 554, 3 L.Ed.2d 601 (1959) ] (1958) and Joint Industry Board v. United States, 391 U.S. 224 [88 S.Ct. 1491, 20 L.Ed.2d 546] (1968) which held that fringe benefits were not entitled to wage priority status. The theory behind Sec. 507(a)(4) is that, in the realities of collective bargaining agreement negotiations, employees may give up certain claims for wages in exchange for fringe benefits. As a result, the fringe benefits earned 180 days before the filing of a

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bankruptcy petition should be entitled to priority in the same way and for the same reason that wages are entitled to priority. H.R.Rep. No. 595, 95th Cong., 1st Sess. 357 (1977), [reprinted in] U.S.Code Cong. & Admin.News 1978, p. 5787. The legislative history makes it clear that Sec. 507(a)(4) covers those types of benefits that typically are bargained for in the employer-employee setting whether as part of a collective bargaining arrangement or otherwise.

In re HLM Corp., 165 B.R. at 41.

With this background the opinions below offered the following rationales for rejecting Wausau's claim for a priority position in bankruptcy. According to the bankruptcy court, the plain language of the Code militates against Wausau's contention inasmuch as premiums for workers' compensation insurance are not "contributions to an employee benefit plan," which an employee may bargain for in lieu of higher wages; instead, in Minnesota, workers' compensation insurance is a system mandated by statute. Employers cannot offer (and employees cannot accept) higher wages as a substitute for workers' compensation benefits. See id. at 40.

The bankruptcy court additionally reasoned that the "contribution" of insurance premiums does not "benefit" employees within the meaning of "employee benefit plan" because it is primarily the employer, not the employee, who benefits. While workers' compensation programs are certainly designed to benefit employees, the...

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