In re A.C.E. Elevator Co., Inc.

• Decision Date: 23 June 2006
• Docket Number: No. 04-17994 (RDD).,04-17994 (RDD).
• Citation: 347 B.R. 473
• Parties: In re A.C.E. ELEVATOR CO., INC., Debtor.
• Court: U.S. Bankruptcy Court — Southern District of New York

347 B.R. 473

In re A.C.E. ELEVATOR CO., INC., Debtor.

No. 04-17994 (RDD).

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

June 23, 2006.

COPYRIGHT MATERIAL OMITTED

O'Donoghue & O'Donoghue, by Robert P. Curley, Philadelphia, PA, for the National Elevator Industry Benefit Plans.

Rattet, Pasternak & Gordon Oliver LLP, by Robert A. Rattet and Julie Cvek Harrison, NY, for the Debtor.

MEMORANDUM OF DECISION ON MOTION OF THE TRUSTEES OF NATIONAL ELEVATOR INDUSTRY BENEFIT PLANS FOR AN ORDER DIRECTING PAYMENT OF DELINQUENT CONTRIBUTIONS AS ADMINISTRATIVE EXPENSES

ROBERT D. DRAIN, Bankruptcy Judge.

The trustees (the "Trustees") of the National Elevator Industry Benefit Plans (the "Plans," consisting of the Pension Plan, the Welfare Plan and the Educational Plan, as defined below) seek an order directing the debtor, A.C.E. Elevator Co., Inc. ("ACE") to pay delinquent Plan contributions, interest, liquidated damages, and attorney's fees and costs as expenses entitled to administrative priority under 11 U.S.C. §§ 365(b)(1), 503(b)(1)(A), 507(a)(1), 1113(f) and 1114(e).

ACE concedes that it has not paid certain Plan contributions but contends that its obligation to do so arose before December 21, 2004, the date that it filed its chapter 11 petition and, therefore, that the Trustees' claim is not entitled to administrative priority.¹ ACE also argues that because the Trustees induced ACE's covered employees to walk off their jobs shortly after the start of the chapter 11 case in an attempt to coerce ACE to pay the Delinquent Contributions in violation of both the automatic stay under 11 U.S.C. § 362(a)² and the collective bargaining agreement under which ACE's Plan funding obligations arise, the Trustees' claim should be disallowed or subordinated.³ The Trustees contest these allegations, which also are the subject of a pending adversary proceeding.

Jurisdiction

This contested matter is a core proceeding under 28 U.S.C. § 157(b)(2)(A) and (B) over which the Court has jurisdiction under 28 U.S.C. § 1334(b). Venue is proper under 28 U.S.C. § 1409(a).

Facts

No evidence was offered at the hearing on the Trustees' motion. Appended to the motion are (i) the affidavit, dated October 31, 2005, of Angela M. Vandegrift, Director of Finance for the Plans; (ii) the Joinder Agreement (the "Joinder"), which expired by its terms on March 16, 2005, under which ACE and the International Union of Elevator Constructors Local One (the "Union") agreed that ACE would be bound by (x) the 2000-2005 collective bargaining agreement (the "CBA") among the Union, the Elevator Manufacturers Association of New York, Inc. and other parties, and (y) each of the Plans; (iii) the face page and pages 8-10 and 31-32 of the CBA, which pertain to the Plans; (iv) excerpts from the Restated Agreement and Declaration of Trust of the National Elevator Industry Pension Plan (the "Pension Plan Agreement") establishing a pension plan (the "Pension Plan"); (v) excerpts from the Restated Agreement and Declaration of Trust of the National Elevator Industry Welfare Plan (the "Welfare Plan Agreement") establishing a welfare, or health plan (the "Welfare Plan"); (vi) excerpts from the Restated Agreement and Declaration of Trust of the National Elevator Industry Educational Plan (the "Educational Plan Agreement;" with the Pension Plan Agreement and the Welfare Plan Agreement, the "Plan Agreements") establishing an educational plan (the "Educational Plan"); (vii) copies of ACE's reports to the Trustees of its Union employees' monthly hours; (viii) the Trustees' chart of Plan contributions made by ACE, as well as the Trustees' calculation of the Delinquent Contributions; and (ix) the Trustees' allocation of the Delinquent Contributions among the Plans.⁴ ACE has not disputed the allocation, although the Trustees' chart has certain headings ("Health-er," "Health-ee," and "Work Preservation") whose meaning is not clear.

ACE's objection attaches a letter, dated December 31, 2004 that the Trustees acknowledge⁵ they sent to ACE's Union employees. The letter informs the employees that if ACE's November Plan contribution is not made, the Trustees "will have no alternative but to terminate your coverage effective January 31, 2005," and that to be eligible for continued coverage "you must either voluntarily terminate your employment with the delinquent employer or participate in a work stoppage against the employer ...."⁶ ACE's objection also attaches the transcript of the March 2, 2005 hearing in this case and a letter, dated August 18, 2005, from Robert Curley, the Trustees' counsel, to Kevin Russell, counsel to American Manufacturers Mutual Insurance Company, ACE's surety on several contracts, which pertain to whether and under what conditions the CBA prohibited the Union from engaging in a strike or its members from staging a walk-out.

ACE's business was, and, to the extent that it still has a business, is, the construction, modernization, maintenance and repair of elevators in the New York City area.⁷ ACE built the elevator systems in the World Trade Center and until September 11, 2001 had been their sole servicer, from which it derived 90 percent of its revenue.⁸ Unable to make up enough of that income from other sources, ACE filed under chapter 11 on December 21, 2004.

The Plans are multi-employer benefit plans under 29 §§ 1002(2), (3) and (37).⁹ Under the Joinder, ACE agreed with the Union to be bound by the Plan Agreements, as well as the CBA, and "to make contributions covering all of its employees represented by the Union to the [Plans] as required by the [CBA]." Joinder, ¶¶ 1, 2.

The CBA obligates ACE to contribute to each of the Plans a specified dollar amount "for each hour of work performed" by Union members in its employ. CBA ¶¶ G(1)(a) and (b), at 8-9 and E, at 31¹⁰ (pertaining to the Welfare, Pension and Educational Plans, respectively).

The Plan Agreements do not separately describe ACE's Plan funding obligations, with the exception of addressing certain administrative matters and referring to the employer's obligation to fund the Plans under the CBA. Thus, Article VI of each Plan Agreement provides,

Par 4. Effective Date of Contributions. All contributions shall be made effective as of the 15^th day of each month for the preceding month and shall continue to be paid as long as the Employer is so obligated pursuant to the [CBA] or until he ceases to be an Employer within the meaning of this Agreement and Declaration of Trust as herein provided.

Par 5. Rules of Contributions. The Trustees shall have the power to adopt rules and regulations relating to the submission, processing and accounting of Employer contributions including but not limited to prescribing the time, place and manner in which contributions to the [Plan] are to be made by the Employer, and to prescribe the forms and reports that must be used in submitting contributions.

(Emphasis added.)

Article VI of each Plan Agreement gives the Trustees the following remedies:

Par 6. Collection and Enforcement. ... The Trustees shall have the power to demand and collect the contributions of the Employer to the Fund. In addition to any other remedies to which the parties may be entitled, any Employer in default for five (5) days will be required to pay interest on the monies due to the Trustees at the rate charged by the Internal Revenue Service at the time of delinquency, together with all reasonable expenses of collection incurred by the Trustees, including but not limited to attorney's fees. The foregoing five (5) day `grace period' shall not apply to any Employer with an outstanding obligation to the Trustees.... If the Trustees file suit to collect any amounts due the Trust Fund, the Trustees shall also seek liquidated damages in the amount of twenty percent (20%) of the contributions due at the time the lawsuit is filed.

Finally, Art. VI ¶ 7 of each Plan Agreement provides that if the employer is two months late in making its required Plan contribution "and has failed to submit the required accounting of Employer contributions showing the Employee(s) who worked for him and the hours worked," the Trustees may determine the amount of the delinquency by averaging past monthly payments.

As noted, ACE concedes that it has not paid the Delinquent Contributions to the Plans, excusing such default, however, on the basis that the Delinquent Contributions are on account of prepetition hours worked by its employees and, therefore, prepetition obligations that ACE is precluded from paying ahead of other prepetition unsecured claims. The parties agree that ACE has paid its Plan contributions attributable to all postpetition hours worked. Tr. at 19.

It is undisputed that ACE sent the Trustees its reports under Art. VI ¶ 5 of the Plan Agreements, which cover the Delinquent Contributions, and thus detail the number of hours that its Union employees worked in November and December 2004, only after the start of the chapter 11 case.

Discussion

1. The Trustees' Claim under 11 U.S.C. §§ 503(b)(1)(A) and 507(a)(1)

The Trustees argue that the Delinquent Contribution claim is entitled to administrative priority under 11 U.S.C. §§ 503(b)(1)(A) and 507(a)(1) because the Plans accepted and processed ACE's reports, and determined the amounts owing, postpetition. ACE argues, to the contrary, that because its Delinquent contributions to the Plans are based on its Union employees' hours worked prepetition, the Delinquent Contributions are prepetition claims not entitled to administrative priority.

In the light of Bankruptcy Code section 503(b)(1)(A)'s plain meaning, relevant case law, and the underlying nature of the Delinquent Contribution claim, ACE's position is correct; the Delinquent Contribution claim is not entitled to priority under 11 U.S.C. §§ 503(b) and 507(a)(1).

Section 507(a)(1) of the Bankruptcy Code states that administrative expenses allowed under Bankruptcy Code section 503(b) shall have a first...