Hollytex Carpet Mills, Inc., In re, 95-6175

Citation73 F.3d 1516
Decision Date09 January 1996
Docket NumberNo. 95-6175,95-6175
PartiesUnempl.Ins.Rep. (CCH) P 22,142 In re HOLLYTEX CARPET MILLS, INC., Debtor. HOLLYTEX CARPET MILLS, INC., Plaintiff-Appellee, v. OKLAHOMA EMPLOYMENT SECURITY COMMISSION, Defendant-Appellant.
CourtUnited States Courts of Appeals. United States Court of Appeals (10th Circuit)

V. Burns Hargis and Ross A. Plourde, of counsel, McAfee & Taft, Oklahoma City, Oklahoma, for Plaintiff-Appellee.

David T. Hopper, Oklahoma City, Oklahoma, for Defendant-Appellant.

Before EBEL, McKAY, and LUCERO, Circuit Judges.

McKAY, Circuit Judge.

This case presents an interesting question regarding the relationship between a debtor's reorganization under the Bankruptcy Code and its subsequent obligations to make unemployment compensation contributions to a state. 1 Hollytex Carpet Mills, Inc., filed for Chapter 11 bankruptcy on May 7, 1991. At the time it filed its petition, it owed the Oklahoma Employment Security Commission (OESC) $44,160.20 in unemployment compensation contributions for the first quarter of 1991, for which OESC asserted a claim in the bankruptcy case. See 11 U.S.C. Sec. 507(a)(7)(D). 2 The bankruptcy court approved Hollytex's reorganization plan on June 2, 1992. The plan provided for Hollytex's payment of the first-quarter 1991 contributions in full plus interest. See 11 U.S.C. Sec. 1129(a)(9)(C). Hollytex has made the payments required by the plan.

The controversy here surrounds the effect of Hollytex's failure to timely remit the contributions to OESC as required by the Oklahoma Employment Security Act of 1980, Okla.Stat. tit. 40, Secs. 1-101 to 9-104. Before the bankruptcy court confirmed Hollytex's reorganization plan, OESC notified Hollytex that its contribution rate for the 1992 calendar year had substantially increased over prior years. The increased rate was due in large part to Hollytex's failure to pay its first-quarter 1991 contributions by January 31, 1992, as required by section 3-107. On January 31, 1992, however, Hollytex was still in bankruptcy. The reorganization plan did not address the issue of Hollytex's liability for the increased rate.

Hollytex brought this adversary proceeding seeking a declaration that its reorganization plan discharged it from liability for the increased contribution rate. On cross-motions for summary judgment, the bankruptcy court held that Hollytex's failure to make timely payment as required by section 3-107 was a historical fact that OESC could use in computing Hollytex's post-bankruptcy contribution rate. It therefore granted summary judgment in favor of OESC. Hollytex Carpet Mills, Inc. v. Oklahoma Employment Sec. Comm'n (In re Hollytex Carpet Mills, Inc.), 174 B.R. 615 (Bankr.W.D.Okla.1994). In an unpublished decision on appeal dated March 24, 1995, the district court reversed and granted summary judgment to Hollytex. It held that OESC's right to an increased compensation rate based on Hollytex's pre-petition failure to timely remit its contributions OESC appeals, and we have jurisdiction under 28 U.S.C. Secs. 158(d) and 1291. We review the grant of summary judgment de novo and apply the same legal standards as those applied by the bankruptcy and district courts, i.e., those set forth in Fed.R.Civ.P. 56(c). Stat-Tech Int'l Corp. v. Delutes (In re Stat-Tech Int'l Corp.), 47 F.3d 1054, 1057 & n. 1 (10th Cir.1995).

was a claim that was discharged by confirmation of the reorganization plan. The court also stated that if the increased rate were more properly viewed as a penalty for late payment, the penalty was also discharged by the plan's confirmation. Finally, the court held that the payment requirement under section 3-107 conflicted in this situation with the Bankruptcy Code and therefore must give way under the Supremacy Clause of the United States Constitution.

On consideration of the parties' arguments and the bankruptcy and district courts' decisions, we agree with the excellent and thorough analysis provided by the district court. 3 We therefore adopt the district court's decision as our own and attach it as an appendix to this opinion. 4

Subsequent to the district court's entry of judgment in favor of Hollytex, the parties filed a stipulation in the district court stating that the amount of damages due Hollytex pursuant to the district court's decision was $76,461.29. Therefore, the judgment of the United States District Court for the Western District of Oklahoma is AFFIRMED, and the case is REMANDED to the district court for enforcement of the stipulation regarding damages.

APPENDIX

IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT

OF OKLAHOMA

HOLLYTEX CARPET MILLS, INC.,

Plaintiff,

v.

OKLAHOMA EMPLOYMENT SECURITY

COMMISSION,

Defendant.

Case No. CIV-95-48-R.

MEMORANDUM OPINION AND ORDER

Before the Court is Plaintiff, Hollytex Carpet Mills, Inc.'s ("Plaintiff") appeal of a Bankruptcy Court's order granting summary judgment in favor of Defendant, Oklahoma Employment Security Commission ("Defendant"), in an adversary proceeding relating to Plaintiff's bankruptcy case under Chapter 11 of the United States Bankruptcy Code, 11 U.S.C. Sec. 101 et seq. (the "Bankruptcy Code"). 1 This Court has jurisdiction to determine the issues presented in this appeal pursuant to 28 U.S.C. Sec. 158(a) and 11 U.S.C. Sec. 505(a)(1).

Because Plaintiff's case presents only issues of law to be decided by this Court, the Court reviews the determination of the Bankruptcy Court de novo. In re Hesser, 984 F.2d 345, 348 (10th Cir.1993); Virginia Beach Federal Savings & Loan Assoc. v. Wood, 901 F.2d 849 (10th Cir.1990). For the reasons discussed below, the Court reverses the Bankruptcy Court's decision, vacates its judgment for Defendant, and gives judgment to Plaintiff. Fed.R.Civ.P. 56(c).

I. INTRODUCTION AND STATEMENT OF THE CASE.
A. Undisputed, Material Facts.

This is a dispute over an increased unemployment contribution rate which was assessed upon Plaintiff by Defendant under Article 3 of Oklahoma's Employment Security Act of 1980, 40 Okla.Stat. Secs. 1-101 to 9-104, (the "OESA"), after Plaintiff filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. The parties have stipulated to all the material facts in the case.

Plaintiff, a corporation, filed its petition with the Bankruptcy Court on May 7, 1991. 2 At the time Plaintiff filed its bankruptcy petition, Plaintiff owed Defendant $44,160.20 in unemployment compensation contributions for the first quarter of 1991. 3 See 40 Okla.Stat. 3-102(A). Accordingly, Defendant asserted a Seventh priority claim for these unpaid contributions in Plaintiff's bankruptcy case. 4 See 11 U.S.C. Sec. 507(a)(7)(D).

During the course of the bankruptcy proceeding, and before confirmation of Plaintiff's plan of reorganization, Plaintiff received notice from Defendant of its contribution rate for the 1992 calendar year. 5 See 40 Okla.Stat. Sec. 3-102(C). At that time, Plaintiff became aware that its contribution rate was set much higher than it had been in previous years. 6 The increase in Plaintiff's contribution rate was apparently caused, in large measure, by Plaintiff's failure to pay its first quarter-1991 contributions by the January 31, 1992 deadline established by section 3-107 of the OESA. 7

Plaintiff's failure to pay its contributions by the statutory deadline caused an increase in Plaintiff's Benefit Wage Ratio for the 1992 year. 8 According to section 3-107 of the OESA, an employer's "Benefit Wage Ratio" for any particular year is calculated by dividing the employer's benefit wages for the past three (3), most recently completed calendar years by the total of the employer's taxable wages upon which contributions have been paid by the employer on or before January 31 of that year, for those three (3) years. The employer's Benefit Wage Ratio is then multiplied by the State Experience Factor 9 to determine the employer's contribution rate. See 40 Okla.Stat. Secs. 3-107, 3-108, 3-109.

Because Plaintiff's first quarter-1991 contributions were not paid by the January 31, 1992 deadline, Plaintiff's Benefit Wage Ratio increased and, correspondingly, so did Plaintiff's contribution rate. Because an employer's Benefit Wage Ratio is calculated based upon a three-year contribution, wage and benefit history, Plaintiff's failure to pay its contributions by the statutory deadline also caused increases in Plaintiff's contribution rates for the 1993 and 1994 calendar years.

Plaintiff's plan of reorganization (the "Plan") was confirmed by the Bankruptcy Court on June 2, 1992. 10 As required by the Bankruptcy Code, Plaintiff's Plan provided for payment of Plaintiff's first quarter-1991 contributions in full, with interest at the rate of eight percent (8%) per year, within six (6) years of the date of Defendant's assessment of the contributions. 11 See 11 U.S.C. Sec. 1129(a)(9)(C). Defendant admits that Plaintiff has, to date, made all the payments required by the Plan, and has remained current on all post-petition contributions required under the OESA. 12

Plaintiff protested the increased contribution rates assessed by Defendant pursuant to state law. 13 The protest has been stayed pending resolution of the legal issues presented in the instant proceeding. 14

B. Course of the Proceedings in the Bankruptcy Court.

Plaintiff filed its motion for summary judgment with the Bankruptcy Court on August 30, 1994, and Defendant responded on September 16, 1994. On October 25, 1994, the parties appeared on Plaintiff's motion before the Honorable Richard L. Bohanon, United States Bankruptcy Judge for the Western District of Oklahoma. 15 The Bankruptcy Court issued its opinion and order giving judgment to Defendant on November 22, 1994. 16

In their briefs and arguments before the Court, Plaintiff and Defendant focused upon the opinions and holdings contained in the six (6) existing cases which addressed the issues raised by the parties. Plaintiff relied upon Michigan Employment Security Commission v....

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