In re Bastian Co., Inc.

• Decision Date: 16 January 1985
• Docket Number: Bankruptcy 83-21071.
• Citation: 45 BR 717
• Parties: In re The BASTIAN COMPANY, INC., Debtor.
• Court: U.S. Bankruptcy Court — Western District of New York

45 B.R. 717 (1985)

In re The BASTIAN COMPANY, INC., Debtor.

Bankruptcy 83-21071.

United States Bankruptcy Court, W.D. New York.

January 16, 1985.

Pension Benefit Guaranty Corp. by James Y. Callear, Washington, D.C., for Pension Benefit Guaranty Corp.

Lloyd H. Relin, Rochester, N.Y., for debtor.

MEMORANDUM AND DECISION

EDWARD D. HAYES, Bankruptcy Judge.

The debtor-in-possession¹ made a motion to reject a pension plan as an executory contract under 11 U.S.C. § 365 and for an order permitting the debtor-in-possession to give notice of its intent to terminate the pension plan under the Employee Retirement Income Security Act of 1974 (ERISA), to the extent such notice of intent is necessary, while reserving all rights to contest all claims filed as a result of such termination. The Pension Benefit Guarantee Corporation (PBGC) objected to the portion of the motion requesting permission to reject the pension plan under § 365 on the grounds that ERISA provides the exclusive procedures for terminating a pension plan, or in the alternative, if § 365 of the Bankruptcy Code is applicable, the Bastian pension plan is not an executory contract and, therefore, cannot be rejected under § 365.

The Court granted the debtor-in-possession's request for an order permitting the debtor to give notice of its intention to terminate the pension plan under ERISA and reserved decision on the § 365 issue. Memorandums of law were subsequently submitted to the Court and oral argument was heard on August 13, 1984.

The facts are as follows. The Bastian Co. is a custom metal stamping business operating in Rochester, New York. Bastian has had a pension plan since July 1, 1961. The present plan was amended, restated in its entirety, and became effective on January 1, 1976, subsequent to the enactment of ERISA. Bastian filed a voluntary petition in bankruptcy under Chapter 11 on September 30, 1983. Therefore, the 1984 Amendments to the Bankruptcy Code are not applicable to this case. On April 6, 1984, Bastian filed this motion to reject its pension plan as an executory contract under 11 U.S.C. § 365. The PBGC, however, objected to rejection under the Bankruptcy Code.

The first question presented is whether a trustee or debtor-in-possession is prevented from rejecting a pension plan under 11 U.S.C. § 365 because pension plan termination procedures are provided in ERISA.

The second question presented is whether a pension plan is an executory contract and, therefore, subject to rejection under 11 U.S.C. § 365.

The third question presented is whether post-petition performance prevents a portion of the post-petition contract from being defined as executory and, therefore, rejected under 11 U.S.C. § 365.

The PBGC's first contention is that ERISA provides the exclusive procedures for terminating a pension plan and that § 365 of the Bankruptcy Code cannot be applied to pension plans.

There can be no argument with the fact that ERISA §§ 1341 and 1342 provide the normal procedures for terminating a pension plan. ERISA, however, also provides that other federal laws will not be impaired. Section 1144(d) of ERISA reads as follows:

(d) Alteration, amendment, modification, invalidation, impairment, or supersedure of any law of the United States prohibited. Nothing in this title shall be construed to alter, amend, modify, invalidate, impair, or supersede any law of the United States (except as provided in sections 111 29 USCS § 1031 and 507(b) 29 USCS § 1137(b)) or any rule or regulation issued under any such law.

Accordingly, courts have held that ERISA and other federal laws should be construed as being complimentary to each other and that ERISA should not pre-empt other federal laws. See Schlansky v. United Merchants and Manufacturers, Inc., 443 F.Supp. 1054 (S.D.N.Y.1977); In re DiPiazza, 29 B.R. 916, 923 (Bankr.N.D.Ill.1983); Bonin v. American Airlines Inc., 621 F.2d 635 (5th Cir.1980) and Air Line Pilots Association International v. Northwest Airlines Inc., 627 F.2d 272 (D.C.Cir.1980). If the pension plan is found to be an executory contract, section 1144(d) prevents ERISA from impairing the Bankruptcy Code.²

The PBGC contends that § 1342(f) of ERISA gives a district court exclusive jurisdiction over the termination of pension plans. Section 1342(f) reads as follows:

(f) Exclusive jurisdiction; stay of other proceedings. Upon the filing of an application for the appointment of a trustee or the issuance of a decree under this section, the court to which an application is made shall have exclusive jurisdiction of the plan involved and its property wherever located with the powers, to the extent consistent with the purposes of this section, of a court of the United States having jurisdiction over cases under chapter 11 of Title 11 of the United States Code. . . .

First of all, § 1342(f) applies to termination proceedings initiated by the PBGC. In the case at bar, however, Bastian started its own voluntary termination under ERISA § 1341. The PBGC did not start these termination proceedings, nor to this Court's knowledge has it made application for the appointment of a trustee. Secondly, ERISA § 1144(d) which prohibits ERISA's impairment of other federal laws, in this case the jurisdiction of the Bankruptcy Court over proceedings arising in or related to a case filed under Title 11, defeats this argument as well.

The PBGC next contends that rejection of a pension plan in bankruptcy is wholly unnecessary because ERISA permits Bastian to terminate its plan at any time simply by filing a notice of intent to terminate 10 days prior to the date of plan termination. PBGC's counsel at oral argument continued that line of reasoning by saying, "Why does 365 even have to be there?"

The assumption or rejection of any executory contract or unexpired lease in bankruptcy is subject to court approval. See In re R. Hoe & Co., Inc., 508 F.2d 1126 (2d Cir.1974) and In re Whitcomb & Keller Mortgage Co., 715 F.2d 375, 11 B.C.D. 909 (7th Cir.1983). The language of § 365 is quite simple. ". . . the trustee, subject to the court's approval, may assume or reject any executory contract or unexpired lease of the debtor." 11 U.S.C. § 365(a) (emphasis added). If this court holds that the pension plan is an executory contract, not only is ERISA not the exclusive procedure for terminating a pension plan, but instead the language of § 365 prevents a debtor-in-possession or trustee from terminating (i.e. rejecting) or assuming a pension plan without first requesting Bankruptcy Court approval pursuant to 11 U.S.C. § 365.

Even though the PBGC does not recognize the purpose of § 365 in bankruptcy, the United States Supreme Court has stated some of the purposes of reorganization and the rejection of executory contracts in its recent case, National Labor Relations Board v. Bildisco and Bildisco, ___ U.S. ___, 104 S.Ct. 1188, 79 L.Ed.2d 482 (1983). (The Supreme Court held that a collective bargaining agreement could be rejected under § 365 of Title 11 upon an appropriate showing). The court in Bildisco said,

The fundamental purpose of reorganization is to prevent a debtor from going into liquidation, with an attendant loss of jobs and possible misuse of economic resources. See HR Rep No. 95-595, p 220 (1977). In some cases reorganization may succeed only if new creditors infuse the ailing firm with additional capital. . . . a similarly beneficial recapitalization could be jeopardized if the debtor-in-possession were saddled automatically with the debtor\'s prior collective-bargaining agreement. Thus, the authority to reject an executory contract is vital to the basic purpose of a Chapter 11 reorganization, because rejection can release the debtor\'s estate from burdensome obligations that can impede a successful reorganization. ___ U.S. at ___, 104 S.Ct. at 1197, 79 L.Ed.2d at 497.

The PBGC argues that ERISA should apply to the pension plan. The ERISA procedures to terminate a pension plan, however, only apply to active and enforceable pension plans. In Bildisco, the Court said:

While all parties to this case ultimately concede that the Bankruptcy Court may authorize rejection of a collective-bargaining agreement, the Board and the Union nonetheless insist that a debtor-in-possession violates § 8(a)(5) and § 8(d) of the NLRA if it unilaterally changes the terms of the collective-bargaining agreement between the date of filing the bankruptcy petition and the date on which the Bankruptcy Court authorizes rejection of the agreement. But acceptance of such a contention would largely, if not completely, undermine whatever benefit the debtor-in-possession otherwise obtains by its authority to request rejection of the agreement. ___ U.S. at ___, 104 S.Ct. at 1198, 79 L.Ed.2d at 497.

The necessary result of the foregoing discussion is that the Board is precluded from, in effect, enforcing the contract terms of the collective-bargaining agreement by filing unfair labor practices against the debtor-in-possession for violating § 8(d) of the NLRA. Though the Board\'s action is nominally one to enforce § 8(d) of that Act, the practical effect of the enforcement action would be to require adherence to the terms of the collective-bargaining agreement. But the filing of the petition in bankruptcy means that the collective-bargaining agreement is no longer immediately enforceable, and may never be enforceable again. Consequently, Board enforcement of a claimed violation of § 8(d) under these circumstances would run directly counter to the express provisions of the Bankruptcy Code and to the Code\'s overall effort to give a debtor-in-possession some flexibility and breathing space. See HR Rep No. 95-595, p 340 (1977). We conclude that from the filing of a petition in bankruptcy until formal acceptance, the collective-bargaining agreement is not an enforceable contract within the meaning of NLRA § 8(d). Cf. Allied Chemical Workers, supra 404 U.S., at 187, 30 L.Ed.2d 341, 92 S.Ct. 383;

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