In re Boston Regional Medical Center, No. 99-10860-CJK.
| Decision Date | 04 December 2000 |
| Docket Number | No. 99-10860-CJK. |
| Citation | 256 BR 212 |
| Parties | In re BOSTON REGIONAL MEDICAL CENTER, Debtor. |
| Court | U.S. Bankruptcy Court — District of Massachusetts |
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Harold Murphy, Boston, MA, for debtor.
Robert K. Ganong, Boston, MA, for the Commonwealth, Division of Employment & Training.
Eric Bradford, Boston, MA, for United States Trustee.
The Commonwealth of Massachusetts, through its Division of Employment and Training ("DET"), asserts two claims in this case under Massachusetts G.L. c. 151A, § 14A, for reimbursement of unemployment compensation benefits paid by the DET to employees whose employment the Debtor terminated around the time of its bankruptcy filing. The parties disagree over the classification, and resulting priority, of the claims under the Bankruptcy Code and now have submitted the matter for adjudication of the legal issues on a statement of agreed facts.
The Commonwealth contends that the portion of its claim that arises from pre-petition benefit payments is a priority claim for an "employment tax" under 11 U.S.C. § 507(a)(8)(D); and that the portion of its claim that arises from postpetition payments is an administrative expense claim under 11 U.S.C. § 503(b)(1)(B)(i). The Debtor argues that no part of the claim has priority under § 507(a)(8)(D) because obligations under G.L. c. 151A, § 14A, for reimbursement of unemployment compensation benefits are not "taxes" within the meaning of § 507(a)(8); and, if they are taxes, are not "an employment tax on a wage, salary, or commission" within the meaning of § 507(a)(8)(D). And the Debtor also argues that the post-petition payments are not administrative expenses because they are based almost entirely on service that the employees rendered to the Debtor before the commencement of the case, not to the estate. For the reasons set forth below, the Court holds that payments in lieu of contributions are "taxes," but not "on a wage, salary, or commission," so they do not have priority under § 507(a)(8)(D), and that they are administrative claims under § 503(b)(1)(B)(i) only insofar as the state law would assess them against the estate as an employer in its own right, separate and distinct from the prepetition Debtor.
The parties have submitted this matter for adjudication on the basis of the following facts, set forth in their joint Statement of Undisputed Facts. The Debtor, Boston Regional Medical Center, owned and operated a 195-bed private, acute-care community hospital in Stoneham, Massachusetts. At all relevant times it operated as a not-for-profit corporation. The DET, an agency of the Commonwealth of Massachusetts, is charged with administering the Commonwealth's Employment and Training Law, G.L. c. 151A. Section 14A of the Employment and Training Law provides that not-for-profit corporations may, in lieu of the quarterly contributions that employers are generally required to make to the Commonwealth's Unemployment Compensation Fund, elect to reimburse the Fund only for the amount of unemployment benefits that the DET actually pays from the Fund to the Debtor's qualifying former employees. This reimbursement option is known as "payments in lieu of contributions." In 1972, the Debtor became subject to the Employment and Training Law and elected the option of making "payments in lieu of contributions" under G.L. c. 151A, § 14A. The Debtor never changed this election and has at all relevant times been subject to the statutory rights and obligations it entails.
The Debtor filed its petition under Chapter 11 of the Bankruptcy Code on February 4, 1999. At the time, the Debtor had already discharged certain employees (the "Prepetition Discharged Employees"). The DET paid benefits under the Employment and Training Law to some of the Prepetition Discharged Employees both before and after the bankruptcy filing. The Commonwealth has filed a proof of claim in the amount of $252,282.00 for benefits paid to these employees between February 1998 and January 1999 (the "Prepetition Reimbursement Claim").
As of the petition date, the Debtor continued to employ 1,262 individuals. Just after the filing, however, the Debtor implemented a plan to close the hospital, pursuant to which it discharged 1,124 employees within two weeks after the filing and sixty-eight more on or before March 31, 1999. Another sixty-seven were discharged at various times between April 1, 1999, and February 14, 2000. Many of the employees discharged after the bankruptcy filing applied for and were paid benefits under the Employment and Training Law. In each instance, the level of benefits paid to the individual was based, in accordance with the Employment and Training Law, only on the wages paid to the individual in the four complete calendar quarters that immediately preceded his or her filing of a claim for unemployment benefits. Consequently, the benefits to the 1190 employees discharged on or before March 31, 1999, were based entirely on wages paid in the four calendar quarters of 1998, all for prepetition service; and the benefits paid to each employee discharged later than March 31, 1999 were based in some part on prepetition service, with the percentage varying according to the date of discharge and application for benefits.
The Commonwealth has filed a second claim, known as the Postpetition Reimbursement Claim, for all amounts paid after the filing of the bankruptcy petition to the Debtor's former employees. As finally amended, the amount of this claim is $2,800,575.00; of this total, $252,000 is for amounts paid to employees discharged prepetition, and the balance is for amounts paid to employees discharged postpetition. The Commonwealth asserts that the entire amount is an administrative expense, entitled to first priority pursuant to 11 U.S.C. § 507(a)(1).
On February 2, 2000, the Debtor objected to the Commonwealth's Prepetition and Postpetition Reimbursement Claims, the latter having by then been thrice amended, and the Commonwealth filed a response to the objection on February 18, 2000. After a preliminary hearing on the objection, held on March 22, 2000, the Court established a deadline for the Commonwealth to file a final amendment of its Postpetition Reimbursement Claim, and ordered the parties to file an agreed statement of facts (provided they could agree on one) by June 5, 2000. The Commonwealth timely filed a final amended proof of its Postpetition Reimbursement Claim. On May 3, 2000, the Debtor, in a single Objection to Proofs of Claim, objected to the Postpetition Reimbursement Claim as finally amended and supplemented its prior objection to the Prepetition Reimbursement Claim. And on June 5, the parties filed a document entitled Joint Stipulation with Respect to Objection to Proofs of Claim of Massachusetts Employment and Training. The Stipulation contained a statement of undisputed facts, identified the facts and legal issues on which the parties disagree,1 and set forth the parties' agreement to file briefs on or before July 14, 2000, with no reply briefs to be filed. In accordance with their stipulation, the parties filed briefs on the present issues on July 13 and 14.
At a status conference on the Debtor's objection to the Commonwealth's claims on August 2, 2000, the Court ascertained that the parties were seeking a determination of the disputed legal issues on the basis of their joint stipulation of agreed facts and respective briefs. The issues as to which they seek adjudication concern only the classification and priority of the Commonwealth's claims, not the amount of each claim. The parties agreed that the Court needed no further evidence to adjudicate the issues now being presented; their remaining disputes of fact have no bearing on the issues they now submit for adjudication. They also agreed that, depending on the Court's rulings regarding classification and priority, the remaining factual issues about the amounts of the claims might be entirely obviated or, if not obviated, at least capable of resolution by agreement.
Also at the status conference, the parties executed and filed an addendum to their Joint Stipulation. In it, they agree that the amount of benefits paid postpetition to employees discharged prepetition is $252,000.00; and accordingly, the Commonwealth's Prepetition Claim is increased from $250,282.00 to $502,282.00, and the amount of the Commonwealth's final Postpetition Claim is decreased from $2,800,575.00 to $2,548,575.00. This addendum appears to indicate that the Commonwealth no longer claims administrative expense status for benefits paid postpetition to employees discharged prepetition, but the Commonwealth has not rescinded arguments in its brief that are directly to the contrary. Therefore, for purposes of this memorandum, I will construe the addendum only as specifying the portion of the Postpetition Reimbursement Claim that is attributable to employees discharged prepetition.
The provisions of the Massachusetts Employment and Training Law, G.L. c. 151A, are relevant to determining each of the issues presented here:
Three aspects of the state statute are relevant to these issues: the general obligation of employers to make contributions to the Commonwealth's Unemployment Compensation Fund; the special provisions for not-for-profit employers who elect to make "payments in lieu of contributions"; and...
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