Holloway v. HECI Explor. Co. Emp. P. Sharing Plan
| Decision Date | 10 August 1987 |
| Docket Number | Civ. A. No. CA3-86-2648-D. |
| Parties | Pat S. HOLLOWAY, Plaintiff-Appellee, v. HECI EXPLORATION COMPANY EMPLOYEES' PROFIT SHARING PLAN, Defendant-Appellant. |
| Court | U.S. District Court — Northern District of Texas |
Marshall Simmons, Dallas, Tex. and Pat S. Holloway, Giddings, Tex., for plaintiff-appellee.
Robert L. Yeager of Stigall & Maxfield, Dallas, Tex., for defendant-appellant.
This appeal challenges the bankruptcy court's authority to determine an action to recover benefits from a qualified ERISA profit sharing plan established pre-petition by a title 11 debtor and challenges the bankruptcy court's judgment that plaintiff-appellee did not waive his right to participate in the plan. The court concludes that the bankruptcy court had the authority to enter a final judgment because appellant effectively waived its right to an Article III determination and holds that the findings of the bankruptcy court on the merits are not clearly erroneous. Accordingly, the judgment appealed from is AFFIRMED.
Plaintiff-appellee, Pat S. Holloway ("Holloway"), was president, chief executive, and sole active officer of HECI Exploration Company, Inc. ("HECI")1 from HECI's 1974 inception until Holloway was terminated by order of a Texas state court in July 1982.2 HECI was formed to engage in the exploration and development of oil and gas properties. In 1978, Holloway decided to establish the HECI Exploration Company Employees' Profit Sharing Plan (the "Plan") as an employee morale booster. The Plan was to be funded with overriding royalty interests in four prospects that HECI was engaged in drilling and developing. In 1978 and early 1979, Holloway caused assignments of such overriding royalty interests to be made to the Plan as well as to himself, his then-wife, and his children. Holloway and HECI treasurer, Dean Johnson ("Johnson"), acted as Plan co-trustees. In November 1979, HECI and Holloway, individually, filed voluntary chapter 11 bankruptcy petitions. The HECI case was later converted to chapter 7.
In June 1984, Johnson, acting as Plan co-trustee, proposed to make a partial distribution of Plan benefits to terminated employees, subject to approval of the bankruptcy court. Johnson excluded Holloway from the list of proposed distributees because he believed Holloway was not interested in participating in the Plan.
Holloway filed this ERISA3 action in Texas state court, seeking to recover from the Plan benefits he contended were due him as a Plan participant and to obtain a declaration that he was entitled to future Plan benefits. By the time of suit, HECI was acting Plan administrator. Through its trustee in bankruptcy, HECI intervened in the state court action and removed it to the U.S. Bankruptcy Court for the Western District of Texas. Thereafter, HECI's trustee moved to transfer venue of the adversary proceeding to the U.S. Bankruptcy Court for the Northern District of Texas for consolidation with the pending HECI chapter 7 proceeding and for trial on the merits. The motion was granted.
Prior to trial in the bankruptcy court, Holloway filed in the district court (Porter, J.) a motion to withdraw reference. Holloway contended that his claim and any funds he might obtain were not the property of his personal bankruptcy estate4 and that the bankruptcy court lacked jurisdiction under 28 U.S.C. § 1334(a) because the proceeding did not involve property of the estate and was not a case "arising under or related to" a bankruptcy case under 28 U.S.C. § 1334(b). He also averred that the district court had jurisdiction pursuant to 28 sic U.S.C. § 1132 and that the proceeding was not a core proceeding. The district court had not ruled on Holloway's motion at the time the adversary proceeding was called for trial by the bankruptcy court.
Holloway also filed in the bankruptcy court a written motion for continuance on the basis of his yet undetermined motion to withdraw reference. At the commencement of trial his counsel urged the motion orally. (Tr. 5). The Plan urged the bankruptcy court to commence trial, arguing, in pertinent part, that whether the proceeding was core or related the bankruptcy court should proceed because the motion to withdraw reference was untimely. (Tr. 6). In response to an inquiry from the bankruptcy court concerning its authority to go forward, the Plan's counsel opined that the proceeding could conceivably be core but was probably related. (Tr. 7). The bankruptcy court concluded that the proceeding was related (Tr. 10), overruled Holloway's motion for continuance, id., and commenced trial.
At the conclusion of trial the bankruptcy judge announced his findings of fact and conclusions of law from the bench (Tr. 140-142), not proposed findings and conclusions for district court de novo review, and informed counsel that he reserved the right to make further findings and conclusions (Tr. 141) and that counsel for either side would have seven days "to submit proposed orders and proposed findings of fact and conclusions of law." Id. at 141-42. The judge then inquired of counsel whether there was "anything further" and, in response to negative indications of counsel, adjourned the proceeding.
The bankruptcy judge received proposed findings and conclusions from both sides and thereafter entered in writing amended findings and conclusions. Although the bankruptcy judge's first conclusion of law was that he had jurisdiction over the parties and subject matter of the adversary proceeding as a "related" proceeding, he nevertheless entered a final judgment. In the judgment, the bankruptcy court held that Holloway was a qualified participant in the Plan and was entitled to receive his interest in the Plan except to the extent that he had waived his right to share in the Plan's June 1984 distribution. The bankruptcy court based its decision on the finding that Holloway, as a HECI employee, was automatically a Plan participant and that Article III, § 3.01 of the Plan required that a participant give notice of his election not to participate in the Plan. Because Holloway had never given any such notice to the Plan administrator, the court held that he never excluded himself from or withdrew from the Plan. The bankruptcy court concluded that Holloway had waived his right to the June 1984 Plan distribution because he was at the time a Plan co-trustee, he did not object to the notice of distribution sent to him, and he did not solicit the bankruptcy court's aid to stop the distribution.
The Plan timely filed its notice of appeal. After the briefs were filed this court conducted oral argument. One of the questions presented in the briefs and at oral argument was whether the bankruptcy court, in a proceeding that it had concluded was a related proceeding rather than a core proceeding, had the authority to enter findings of fact and conclusions of law and a final judgment or whether it had only the authority to enter proposed findings and conclusions which were subject to this court's de novo review. In light of the apparent incongruity between the bankruptcy court's conclusion of law that the proceeding was related and its entry of findings and conclusions and a judgment, this court, although not bound by the bankruptcy court's conclusion of law, determined that it should first give the bankruptcy court the opportunity to review the matter. The court remanded the case for the limited purpose of allowing the bankruptcy court to clarify its conclusion of law and to vacate the judgment, if improvidently entered, and file proposed findings of fact and conclusions of law for de novo review.
In compliance with the limited remand order, the bankruptcy court filed an order setting forth its basis for entering a final judgment. The order contained additional findings and conclusions, adopted the bankruptcy court's earlier findings and conclusions, and provided in the alternative that if the bankruptcy court had erred in entering a final judgment, its findings and conclusions were filed as proposals for de novo review. The bankruptcy court found in its order that, at the inception of trial, it had concluded that the proceeding was related (Supp. Finding No. 4) but that, through inadvertence, it had failed at the conclusion of trial to enter proposed findings and conclusions (Supp. Finding No. 5), and that the parties gave their implied consent for the court to enter a final judgment pursuant to 28 U.S.C. § 157(c)(2) (Supp. Finding No. 7). The bankruptcy court concluded in its order, as a matter of law, that the adversary proceeding was related (Supp. Conclusion No. 1), that the Plan, by its failure to contest the right of the bankruptcy court to sign a judgment, consented to the bankruptcy court's entering findings and conclusions and a final judgment pursuant to 28 U.S.C. § 157(c)(2) (Supp. Conclusion No. 2), and that the Plan had impliedly waived its right to object to the jurisdiction of the bankruptcy court and the entry by the court of findings and conclusions and a final judgment (Supp. Conclusion No. 3).
The parties have filed supplemental briefs and this appeal is once again before the court for decision.
The court first decides whether the proceeding below was a core or non-core related proceeding.5 The distinction is important, of course, because if it was a core proceeding the bankruptcy judge had the authority to enter the final judgment appealed from and his findings of fact are entitled to the deference of the clearly erroneous rule; if non-core related the bankruptcy judge had the authority only to enter proposed findings and conclusions which, in response to timely objections, this court must consider de novo and with respect to which the court can take additional evidence, recall witnesses, or recommit the matter to the bankruptcy judge for further proceedings.
The...
To continue reading
Request your trial