In re AC Williams Co.
| Decision Date | 02 August 1985 |
| Docket Number | Bankruptcy No. 581-409 to 581-411,Adv. No. 584-0169,584-0170. |
| Citation | 51 BR 496 |
| Parties | In re The A.C. WILLIAMS COMPANY, Ravenna Industries, Inc., Miami Foundry Corporation, Debtors. RAVENNA INDUSTRIES, INC., M.F. Company, fka Miami Foundry Corporation, Plaintiffs, v. OHIO BUREAU OF WORKERS' COMPENSATION, the Industrial Commission of Ohio, Defendants. |
| Court | U.S. Bankruptcy Court — Northern District of Ohio |
George Mallo, Sp. Counsel, State of Ohio, Akron, Ohio, Kevin R. Abrams, Law Section, Philip E. Donner, Law Director, Bureau of Workers Compensation, Columbus, Ohio, for defendants.
David Hunter and Marc Merklin, Akron, Ohio, for debtors.
FINDING AS TO TAX LIABILITY AND INJUNCTIVE RELIEF
This matter is before the court on the verified complaint of A.C. Williams Company ("A.C. Williams"), Ravenna Industries, Inc. ("Ravenna"), and M.F. Company fka Miami Foundry Corporation ("Miami"), debtors, to determine tax liability and for injunctive relief. That branch of the complaint for injunctive relief against defendants herein, the Ohio Bureau of Workers' Compensation ("Bureau") and the Industrial Commission of Ohio ("Commission"), was settled by an order of this court entered November 30, 1984. The defendants were enjoined from conducting administrative proceedings related to workers' compensation coverage of plaintiffs until the final disposition of that branch of the complaint for a determination of tax liability of debtors.
The parties have stipulated to the material facts and to the authenticity of the exhibits which augment the stipulated facts. The parties have fully briefed the issues raised by the complaint. An oral argument was held on July 11, 1985.
The controversy surrounds the payment by debtors of two separate assessments of the Bureau as premiums to the workers' compensation fund:
1. a merit rating increase in premiums in the sum of $294,347.47 for the period of March 10, 1981 to June 30, 1984 based in part upon Ravenna's pre-petition experience of claims for workers' compensation; and
2. a supplemental billing in the sum of $29,178.27 issued January 5, 1984 for the period of March 10, 1981 to June 30, 1981 pursuant to a rate revision notice sent by the Bureau to Ravenna on or about December 16, 1981.
A brief summary of the history of these Chapter 11 cases will help illuminate the issues raised by the parties. A.C. Williams is an administrative holding company and owns all the outstanding capital stock of Ravenna and Miami. On March 10, 1981, A.C. Williams, Ravenna, and Miami filed petitions for relief under Chapter 11 of Title 11 of the United States Code and continued to run their businesses as debtors in possession. On October 22, 1981 the Bureau filed a proof of claim for unpaid premiums in the Chapter 11 case of Ravenna in the sum of $549,532.40 which was allowed as a priority claim pursuant to section 507(a)(6) by Order of January 5, 1983. On December 8, 1981, the Bureau filed a proof of claim for unpaid premiums in the Chapter 11 case of Miami in the sum of $11,078.77 which claim was allowed as a priority claim pursuant to section 507(a)(6) by the same order. The court confirmed all plans of the debtors on January 5, 1983.
By letter dated December 16, 1981 the Bureau informed Ravenna that its premium rates were revised upward for the payroll period of March 10, 1981 to June 30, 1981 based, in part, upon the pre-petition claims experience of Ravenna. For each successive six-month payroll period the Bureau submitted premium billings which reflected pre-petition experience and which increased Ravenna's premium cost by 95 percent. The premium rate for Miami decreased.
On February 26, 1982 Industrial Advisors ("Advisors"), acting on behalf of the debtors, formally protested the determination to the Actuarial Section of the Bureau. By letter dated April 14, 1982 the Actuarial Section denied the formal protest. By letter dated April 27, 1982 the Advisors requested a hearing before the Adjudicating Committee of the Commission and a hearing was held on February 27, 1984. The Adjudicating Committee denied the protest by letter dated March 13, 1984 and the Advisors appealed that decision. The hearing before the Commission has been stayed by an order of this court entered November 30, 1984 until this court makes its determination of the debtors' tax liability pursuant to section 505(a)(1).
The second disputed assessment involves the Bureau's supplemental billing to Ravenna on January 5, 1984 in the amount of $29,178.27 as the result of a rate revision for the period of March 10, 1981 to June 30, 1981.
The debtors seek an order enjoining the Bureau from using the pre-petition, pre-confirmation workers' compensation claims experience in calculating the experience rating of the debtors and the subsequent premiums owed the Bureau. The debtors argue that such is in violation of the automatic stay provision of section 362, the automatic injunction provision of section 524, the discharge provisions of section 1141 and the anti-discriminatory provisions of section 525. The debtors argue in their briefs that as debtors in possession they are entitled to be treated as new entities and that the use by the Bureau of the pre-petition, pre-confirmation claims experience is prohibited by the Code.
The court finds that this argument is without merit and is instead guided by the decision of In re Pine Knob Investment, 20 B.R. 714 (Bankr.E.D.Mich.1982). In that case the Michigan Employment Security Commission ("MESC") requested the bankruptcy court to determine the rates of contribution to the state unemployment system for several debtors in possession pursuant to its power under 11 U.S.C. section 505(a) of the Code. The debtors objected to the proofs of claim filed by MESC because the post-petition activities of the debtors in possession were used to calculate the contribution rates. The debtors argued that as debtors in possession they were entitled to separate tax treatment, that of a "new employer" with a substantially lower contribution rate. The bankruptcy court first noted that it must give full faith and credit to the state law upon which the tax is based. Pine Knob, 20 B.R. at 716 (citing Arkansas Corp. Comm'n v. Thompson, 313 U.S. 132, 61 S.Ct. 888, 85 L.Ed. 1244 (1941)). Relevant Michigan law provides that the trustee in bankruptcy is classified as an "employing unit", and that the transfer of the assets of a business to another employing unit transfers that business's rating account. 20 Bankr. at 716. In denying the debtors' request that as debtors in possession they are legal entities distinct from the pre-petition debtor and entitled to separate tax treatment, the Pine Knob court concluded:
From these findings it is concluded that the filing of a petition under Chapter 11, while affording certain rights, does not entitle the estates of the debtors to the contribution rate for new employers established by state law. Nor should the state statute be construed to effect this result. While the filing has created an estate for administrative purposes, the entities have retained possession and control of their assets and are conducting the business in which they are engaged prior to commencement of their cases while they attempt reorganization. As such, they should be treated as successor employers for the purposes of determining what contribution rate is applicable to their activities.
This court is in agreement with that conclusion and finds support for its position in N.L.R.B. v. Bildisco and Bildisco, 465 U.S. 513, 104 S.Ct. 1188, 1197, 79 L.Ed.2d 482 (1984):
Much effort has been expended by the parties on the question of whether the debtor is now properly characterized as an "alter ego" or a "successor employer" of the prebankruptcy debtor, as those terms have been used in our labor decisions. Citations omitted We see no profit in an exhaustive effort to identify which, if either, of these terms represents the closest analogy to the debtor-in-possession. Obviously if the latter were a wholly "new entity," it would be unnecessary for the Bankruptcy Code to allow it to reject executory contracts, since it would not be bound by such contracts in the first place. For our purposes, it is sensible to view the debtor-in-possession as the same "entity" which existed before the filing of the bankruptcy petition, but empowered by virtue of the Bankruptcy Code to deal with its contracts and property in a manner it could not have done absent the bankruptcy filing.
104 S.Ct. at 1197. See also, I.R.C. sect. 1399 ().
Upon inquiry by the court on oral argument the attorney for the debtors agreed that the reorganized debtors are not new entities; he acknowledged that the business of the pre-petition and post-petition debtors continued uninterrupted. "There is no hiatus while the reorganizing entity awaits operating authority; it continues its pre-petition business activities with its pre-petition personnel, albeit with the rights, powers and privileges granted by the Code." In re Glover, Inc., 43 B.R. 322, 324 (Bankr.D.N.M.1984).
The debtors argue that if the insurer were a private insurer, then the debtors would have no objection to the insurer using pre-petition experience in arriving at a rate.
The parties do not dispute the process by which the Commission fixes rates; only the use of the debtors' pre-petition claims experience is at issue. They have stipulated to the Commission's authority and method of doing so. Stipulations of Facts 20-28. The power of the Commission to fix rates is bestowed by section 4123.34 of the Ohio Revised Code:
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