Harris Management Co., Inc., In re
| Decision Date | 18 June 1986 |
| Docket Number | ITPE-NMU,Nos. 85-2124,85-2224,s. 85-2124 |
| Parties | 27 Wage & Hour Cas. (BN 1593, 104 Lab.Cas. P 34,809, 14 Collier Bankr.Cas.2d 1395, 14 Bankr.Ct.Dec. 964, Bankr. L. Rep. P 71,196 In re HARRIS MANAGEMENT COMPANY, INC. Debtor. Bruce LINDSEY, as Trustee of Harris Management Company, Inc., Plaintiff- Appellee, v. DEPARTMENT OF LABOR, an Agency of the United States of America, Defendant- Appellant, v.WELFARE PLAN andPension Fund, Intervenors-Appellants. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Bruce Lindsey, Salinas, Cal., for plaintiff-appellee.
Carol A. De Deo, Washington, D.C., for defendant-appellant.
Stephen W. Dyer, Alexander C. Crosby, Horan, Lloyd & Karachale, Monterey, Cal., for intervenors-appellants.
Appeal from the United States District Court for the Northern District of California.
Before KENNEDY, FARRIS, and JOHN T. NOONAN, Jr., Circuit Judges.
In this appeal from the district court's affirmance of the bankruptcy court, we must determine whether the bankruptcy court erred in ordering the government to return certain funds transferred to it by the debtor. The transfer was pursuant to a stipulation the bankruptcy court had approved earlier.
The debtor, Harris Management Company, Inc., contracted with the government in December 1980 to provide mess attendant services at two Army bases, Fort Ord and Fort Hunter Liggett. The contract ("the Fort Ord contract") was subject to the Service Contract Act, 41 U.S.C. Secs. 351-358, which requires contractors furnishing services to the United States to pay certain minimum wages and benefits to employees. In May 1981, Harris made a collective bargaining agreement with the Industrial, Technical and Professional Employees Division of the National Maritime Union of America, AFL-CIO. From May 1981 to December 1981, Harris directed the required benefit payments to the ITPE-NMU Welfare Plan and the ITPE-NMU Pension Fund (collectively "the Union Fund"). In December 1981, Harris stopped paying the health and pension benefits. On September 22, 1982, Harris filed a petition for reorganization under Chapter 11 of the Bankruptcy Code. When the petition was filed Harris was in arrears in benefit payments due under the Ford Ord contract. The arrearage was approximately $108,000. Harris continued to perform work under the contract.
On November 26, 1982, the government filed a complaint in bankruptcy court, entitled "Complaint seeking declaratory relief that automatic stay does not apply, or, alternatively, relief from the automatic stay." In the complaint, the government asserted its withholding rights under the Service Contract Act, 41 U.S.C. Sec. 352(a), and expressed its intention to withhold approximately $108,000 from the payment due Harris on November 30, 1982. After the complaint was filed, Harris and the government negotiated a deferred withholding schedule instead of the government's proposed lump-sum withholding. They agreed about $42,000 would be transferred to the government from amounts due Harris under an unrelated contract with the United States Navy, and a total of about $78,000 would be withheld by the government from the next four payments due Harris under the Fort Ord contract. The bankruptcy court approved the agreement in a "Stipulation and Order" dated December 21, 1982. On March 25, 1983, the bankruptcy court granted the government's motion to dismiss its complaint, the contract having expired by its terms and payments having been withheld as provided in the approved agreement.
On August 19, 1983, plaintiff-appellee Bruce Lindsey was appointed trustee in bankruptcy of the Harris estate. Lindsey brought the instant action to recover for the bankruptcy estate the $120,000 that had been transferred to the government. The Union Fund intervened on the side of the government, claiming it was entitled to the funds on behalf of Harris' employees. The bankruptcy court ruled for the trustee and ordered the funds turned over to the estate. The district court affirmed the order of the bankruptcy court, and the government and the Union Fund appealed. We reverse.
The primary issue is whether the bankruptcy court's approval of the stipulation effected an assumption of the Fort Ord contract under 11 U.S.C. Sec. 365. The government and the Union Fund characterize the bankruptcy court's approval of the stipulation as an order permitting the assumption of the Fort Ord contract, revised to allow withholding to cure the default in benefit payments. The trustee contends the order was not an approval of a contract assumption as contemplated by section 365. A subsidiary issue is whether the bankruptcy court had the authority to rescind its earlier approval of the stipulation. In its order for the return of funds, the bankruptcy court ruled that approval of the stipulation did not authorize assumption of the revised contract because there was no explicit mention of assumption and because there was some uncertainty about the notice to Harris' creditors. We find neither rationale supports the ruling.
We agree that assumption under section 365 requires the express approval of the court, In re Whitcomb & Keller Mortgage Co., 715 F.2d 375, 380 (7th Cir.1983); In re Kelly Lyn Franchise Co., 26 Bankr. 441, 445 (Bankr.M.D.Tenn.1983); 2 Collier on Bankruptcy p 365.03, at 365-25 (L. King 15th ed. 1985), but conclude the requirement was satisfied. It is not seriously disputed, and there is no finding to the contrary, that the whole purpose of the stipulation was to effect an assumption of the Fort Ord contract, as revised to permit the government's withholding. Cf. In re Whitcomb & Keller Mortgage Co., 715 F.2d at 380 (). Harris indicated its intent to assume the contract on October 19, 1982 when it submitted to the...
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