In re Allentown Moving & Storage, Inc.
| Decision Date | 28 October 1997 |
| Docket Number | Bankruptcy No. 93-23467T,No. 97-4397.,97-4397. |
| Citation | 214 BR 761 |
| Parties | In re ALLENTOWN MOVING & STORAGE, INC., Debtor. MANUFACTURERS ALLIANCE INSURANCE COMPANY, Appellant, v. Gloria SATRIALE, as Chapter 7 Bankruptcy Trustee of Allentown Moving & Storage, Inc., Appellee. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
Michael D. Bull, Blakinger, Byler & Thomas, P.C., Lancaster, PA, for Debtor.
Margery N. Reed, Lauren Lonergan Taylor, Duane, Morris & Heckscher, L.L.P., Phila, PA, John J. Sellinger, King of Prussia, PA, for Manufacturers Alliance Insurance Company.
MEMORANDUM
Manufacturers Alliance Insurance Company ("MAIC") appeals from the bankruptcy court's decision that its claim for unpaid workers' compensation insurance premiums was not entitled to priority payment from the estate of Allentown Moving & Storage Inc. ("Allentown") as a "contribution to an employee benefit plan" under 11 U.S.C. § 507(a)(4). For the reasons set forth below, I will affirm the judgment of the Bankruptcy Court.
There are no material facts in dispute.
Manufacturers Alliance Insurance Company provided workers compensation and employer's liability benefits to the employees of Allentown Moving & Storage, Inc. under two policies. The premiums were paid by Allentown. At the time Allentown filed for bankruptcy on December 20, 1993, it had not fully paid MAIC for pre-petition coverage. On March 23, 1994, MAIC filed a fourth priority claim for $12,948.00, which represents that portion of the outstanding premiums under both policies incurred within 180 days of the bankruptcy filing. See 11 U.S.C. § 507(a)(4). The Trustee, Gloria Satriale, ("Trustee") filed an Objection to this priority claim (Proof of Claim No. 9) on the basis that MAIC's claim was not entitled to priority status under Section 507(a)(4). On May 28, 1997, the Bankruptcy Court entered an Order granting the Trustee's Objection, holding that MAIC's claim was not entitled to priority treatment under 11 U.S.C. § 507(a)(4), because insurance premiums for workers compensation benefits are not "contributions to an employee benefit plan."
Neither the Trustee nor the Bankruptcy Court disputes that MAIC's claim arose from services rendered within 180 days before the date Allentown filed for bankruptcy. In addition, neither the Trustee nor the Bankruptcy Court disputes the calculation of the claim or its amount. Therefore, the only issue on appeal is whether the Bankruptcy Court erred as a matter of law in finding that a claim for unpaid workers' compensation insurance premiums is not entitled to priority treatment under Section 507(a)(4).1
"In bankruptcy cases, the district court sits as an appellate court." In re Cohn, 54 F.3d 1108, 1113 (3d Cir.1995). "As a proceeding tried initially before the Bankruptcy Court for the Eastern District of Pennsylvania, the standard of review for the district court is governed by Rule 8013." Id. Federal Bankruptcy Rule of Procedure 8013 provides:
The district court applies "a clearly erroneous standard to findings of fact . . . and a de novo standard of review to questions of law." Berkery v. Comm'r, Internal Revenue Serv., 192 B.R. 835, 837 (E.D.Pa. 1996) (citing inter alia Universal Minerals, Inc. v. C.A. Hughes & Co., 669 F.2d 98, 102 (3d Cir.1981)), aff'd, 111 F.3d 125 (1997). De novo review requires the district court to make its own legal conclusions, "without deferential regard to those made by the bankruptcy court." Fleet Consumer Discount Co. v. Graves (In re Graves), 156 B.R. 949, 954 (E.D.Pa.1993), aff'd, 33 F.3d 242 (3d Cir. 1994). When the parties to an appeal have submitted their case on a stipulated record of facts, a district court makes its own independent determination regarding the disposition of the legal issues presented by the case. Citicorp Mortgage, Inc. v. Hirsch (In re Hirsch), 166 B.R. 248, 251 (E.D.Pa.1994).2
Title 11 U.S.C. § 507 establishes the statutory framework for the priority in which payments will be made to creditors in bankruptcy proceedings. The part of Section 507(a)(4) that is relevant to this appeal provides a fourth priority for "unsecured claims for contributions to an employee benefit plan arising from services rendered within 180 days before the date of the filing of the petition or the date of the cessation of the debtor's business, whichever occurs first." 11 U.S.C § 507(a)(4). The present controversy arises because the phrase "contributions to an employee benefit plan" is not defined by the Bankruptcy Code.
Before Section 507(a)(4) was added to the Bankruptcy Code, priority treatment for employee compensation was limited to actual "wages and commissions."3 In 1978, Congress added § 507(a)(4) in recognition of the changing nature of employee compensation packages. By supplementing the priority for actual wages and commissions with a priority for "fringe benefits," Congress intended to overrule two United States Supreme Court cases, United States v. Embassy Restaurant, 359 U.S. 29, 79 S.Ct. 554, 3 L.Ed.2d 601 (1959), and Joint Industry Board v. United States, 391 U.S. 224, 88 S.Ct. 1491, 20 L.Ed.2d 546 (1968), which, in construing the 1898 Act, excluded fringe benefits from the Code's wage priority provisions. The legislative history provides:
Paragraph(4) overrules United States v. Embassy Restaurant, 359 U.S. 29, 79 S.Ct. 554, 3 L.Ed.2d 601 (1959), which held that fringe benefits were not entitled to wage priority status. The bill recognizes the realities of labor contract negotiations, under which wage demands are often reduced if adequate fringe benefits are substituted. The priority granted is limited to claims for contributions to employee benefit plans such as pension plans, health or life insurance plans, and others, arising from services rendered after the earlier of one year before the bankruptcy case and the total of all contributions payable under this paragraph . . .
H.R.No. 95-595, 95th Cong.2d Sess. 187 (1978), reprinted in 1978 U.S.C.C.A.N. 5963, 6313.
Appellant urges the Court to interpret Section 507(a)(4)'s priority broadly to include workers' compensation insurance. Appellant argues that the legislative history encourages a broad interpretation of the Section by referencing "pension plans, health or life insurance plans, and others . . ." Id. (emphasis added). By providing, "and others," Appellant continues, Congress intended that "contributions to an employee benefit plan" include all types of insurance payments, including workers' compensation premiums.4 By contrast, the Trustee asks the Court to recognize the strong presumption against the granting of priority status and to limit priority status to the wage-like forms of compensation that Congress intended to address by adding Section 507(a)(4). The Trustee argues further that workers' compensation insurance premiums for pre-petition coverage do not provide the type of direct benefit to employees that Congress intended to protect under Section 507(a)(4). For the following reasons, I agree with the Trustee.
The Third Circuit has yet to specifically address whether a claim for unpaid pre-petition workers' compensation insurance premiums is entitled to fourth priority status under § 507(a)(4).5 For that reason, the Court relies on established principles of statutory interpretation to resolve the instant issue.
Statutory interpretation begins with the language of the statute itself and the words are given their ordinary meaning. Moskal v. United States, 498 U.S. 103, 108, 111 S.Ct. 461, 465, 112 L.Ed.2d 449 (1990). Where the statutory meaning is unclear, the Court looks to the legislative history to resolve any conflict. See Cohen v. De La Cruz (In re Cohen), 106 F.3d 52, 57-58 (3d Cir.1997) (citing Patterson v. Shumate, 504 U.S. 753, 761, 112 S.Ct. 2242, 2248, 119 L.Ed.2d 519 (1992)); United States v. Wernikove, 206 F.Supp. 407, 408 (E.D.Pa.1962) () (citation omitted). "Because the presumption in bankruptcy cases is that the debtor's limited resources will be equally distributed among his creditors, statutory priorities are narrowly construed." See In re Great Northeastern Lumber & Millwork Corporation, 64 B.R. 426, 427 (Bankr.E.D.Pa. 1986) (citations omitted).
In common parlance, "employee benefit plan" means the total of all benefits that the employee receives from the employer as remuneration. In other words, the employer's "contributions" to such a plan are those benefits that he promises to the employee in lieu of wages. The question for the Court is whether workers' compensation insurance is such a "contribution to an employee benefit plan." An examination of § 507(a)(4)'s legislative history clearly reveals that it is not. Explaining the contours of the priority for "contributions to an employee benefit plan" under Section 507(a)(4), Congress stated:
In recognition of changes since 1926, the bill . . . establishes a new category, a fourth priority immediately following the wage priority, for contributions and payments to employee benefit plans. This will include health insurance programs, life insurance plans, pension funds and all other forms of employee compensation that is not in the form of wages.
...
To continue reading
Request your trial
-
In re 234-6 West 22nd St. Corp.
... ... In re Duvar Apartments, Inc., 205 B.R. 196 (9th Cir. BAP 1996). As that court correctly notes, the ... ...