In re Carlton Enterprises, Inc., Bankruptcy No. 586-296.
| Decision Date | 07 July 1989 |
| Docket Number | Bankruptcy No. 586-296. |
| Citation | 103 BR 876 |
| Parties | In re CARLTON ENTERPRISES, INC., Debtor. |
| Court | U.S. Bankruptcy Court — Northern District of Ohio |
Daniel McGown, Akron, Ohio, for debtor.
George D. Mallo, Akron, Ohio, Sp. Counsel to the Atty. Gen.
Larry Rhodebeck, Ohio Bureau of Workers' Compensation, Columbus, Ohio.
FINDING AS TO OBJECTIONS TO CLAIMS OF THE OHIO BUREAU OF WORKERS' COMPENSATION
This matter comes before the court upon the Objections to Claims of the Ohio Bureau of Workers' Compensation (BWC) as filed by the debtor in possession, Carlton Enterprises, Inc. (Carlton).
The court finds that Carlton filed on May 6, 1986 a voluntary petition under Chapter 11 of the Bankruptcy Code. The BWC filed three priority proofs of claim; to-wit, a claim in the amount of $141,572.12 pursuant to Ohio Revised Code § 4123.35 for unpaid premiums; a claim in the amount of $69,001.52 pursuant to Ohio Revised Code § 4123.75 for BWC claim No. 41979-27; and a claim in the amount of $49,476.53 pursuant to Ohio Revised Code § 4123.75 for BWC Claim No. 43946.27.
Carlton objected to the claim of $141,572.12 on the ground that its records indicated that only the sum of $63,251.91 was due. However, Carlton never offered or presented any evidence to the court. Carlton objected to the claims of $69,001.52 and $49,476.53 on the ground that said claims were for pure penalties, not entitled to priority and not properly established.
The parties filed Stipulations with Respect to Claims of State of Ohio, Bureau of Workers' Compensation, and Objections Thereto of the Debtor which is hereby made a part of and attached to this Finding. Further, the parties agreed to have this matter determined on the basis of the pleadings.
Pursuant to the Stipulations, the actual amounts claimed by the BWC are as follows: $134,773.38 for unpaid premiums; $69,001.52 for BWC Claim No. 41979-27; and $49,476.65 for BWC Claim No. 43946-27. The latter two sums claimed are collectively referred to as "Noncomplying Employer Claims." The nature of the injuries on which the Noncomplying Employer Claims are based is such that if Carlton had made timely premium payments, the claims would have been covered by the Ohio State Insurance Fund with Carlton owing nothing directly to the injured workers.
Carlton objects to the claims of the BWC on the grounds that said claims do not constitute an excise tax so as to enable the BWC to assert its claims as being entitled to priority under Section 507(a)(7)(E) of the Bankruptcy Code and further, that the Noncomplying Employer claims constitute a penalty which is not in compensation for actual pecuniary loss by the BWC and is therefore not allowable as a priority under Section 507(a)(7)(G) of the Bankruptcy Code.
As argued by the BWC, premiums payable to the BWC have a priority as a tax pursuant to 11 U.S.C. § 507(a)(7)(E). In re A.C. Williams, 51 B.R. 496 (Bankr.N. D.Ohio 1985); In re Primeline Industries, Inc., 103 B.R. 861 (Bankr.N.D.Ohio 1987). Therefore, the court holds that the sum of $134,773.38 as and for unpaid premiums is allowable as a claim entitled to priority pursuant to 11 U.S.C. § 507(a)(7)(E). The court notes that of said sum, $38,454.96 is secured pursuant to a lien filed by the BWC on September 23, 1985.
The Noncomplying Employer Claims include actual payments made by the BWC and also the present value of expected future payments as actuarily determined. Had Carlton paid its premiums, the BWC Claim Nos. 41979-27 and 43946-27 would have been covered by the Ohio State Insurance Fund.
Ohio law provides that in the event of an injury to an employee of an employer whose coverage has lapsed (i.e. Carlton), the employee has the option of bringing suit in common law against the employer, Ohio Rev.Code § 4123.77, or filing for workers' compensation benefits. Ohio Rev. Code § 4123.75. Before the claim of a non-complying employer is granted or denied, the BWC must file in the recorder's office of the county of the employer's property, an affidavit. Said affidavit constitutes a lien on both real and tangible personal property of the employer. Ohio Rev. Code § 4123.76; Ohio Admin.Code Rules XXXX-XX-XX and XXXX-X-XX.
In the event that said claim is approved (i.e. BWC Claim Nos. 41979-27 and 43946-27), the BWC shall pay benefits out of the surplus portion of the Ohio State Insurance Fund. Ohio Rev.Code § 4123.75. The BWC shall then use the lien and various other remedies to collect this amount (i.e. $69,001.52 and $49,476.65) in full from the employer (i.e. Carlton). Ohio Rev.Code §§ 4123.75 and 4123.76. In contrast, only a percentage of the cost of a claim for a complying employer would be assessed with the semi-annual premium. Ohio Admin.Code Rule 4121-7-03.
Carlton argues that by administrative action by the BWC, it is possible to obtain retroactive coverage of the workers' claims upon payment of any late premiums and thereby award payment for Noncomplying Employer Claims. Pursuant to Ohio Administrative Code Rules XXXX-X-XX and XXXX-XX-XX, the BWC must administratively determine whether or not a late payment of a premium creates retroactive coverage. The BWC is limited, however, to consideration of premium payments made within sixty days of default. Ohio Admin.Code Rule 4121-14-03. Therefore, Carlton will not and would not have automatically been relieved of paying the Noncomplying Employer Claims upon its payment of the premiums in default.
Carlton's argument that the BWC should not be permitted to treat Carlton as though coverage had been in effect by collecting unpaid premiums while at the same time collecting payments because there was no coverage is well taken. The court finds that the Noncomplying Employer Claims are not entitled to priority as taxes under 11 U.S.C. § 507(a)(7)(E). However, the court finds that said claims are entitled to priority pursuant to 11 U.S.C. § 507(a)(7)(G) as reimbursement for actual pecuniary loss imposed as a penalty.
As argued by the BWC, Section 507(a)(7)(G) requires the following: 1) that the claims be related to a tax under Section 507(a)(7) (i.e. Section 507(a)(7)(E)); 2) that the claims be penal in nature (i.e. imposing a cost against an amenable employer for failing to maintain workers' compensation coverage at the time of the workers' injuries); and 3) that a claim against the employer (i.e. Carlton) compensates the creditor (i.e. BWC) for actual...
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