In re Franchi Equip. Co. Inc.

• Decision Date: 29 June 2011
• Docket Number: No. 09–42782–MSH.,09–42782–MSH.
• Parties: In re FRANCHI EQUIPMENT CO., INC., Debtor.
• Court: United States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of Massachusetts

452 B.R. 352

55 Bankr.Ct.Dec. 15

In re FRANCHI EQUIPMENT CO., INC., Debtor.

No. 09–42782–MSH.

United States Bankruptcy Court,D. Massachusetts,Central Division.

June 29, 2011.

Steven Weiss, Shatz, Swartz and Fenton, P.C., Springfield, MA, for Steven Weiss, Chapter 7 trustee.Kelly M. Lawson, Office of Solicitor, USDOL, Boston, MA, for Hilda Solis, Secretary, USDOL.

MEMORANDUM OF DECISION ON THE TRUSTEE'S MOTION TO AUTHORIZE PAYMENTS OF CERTAIN EXPENSES FROM 401(K) PLAN ASSETS

MELVIN S. HOFFMAN, Bankruptcy Judge.

This case is before me on the motion of Steven Weiss, Chapter 7 trustee, to authorize payments of certain expenses from the assets of a 401(k) retirement plan. Hilda L. Solis, Secretary of the United States Department of Labor (“DOL”), objects. The Chapter 7 trustee and the DOL disagree as to whether I have jurisdiction to approve the fees of the trustee and his counsel for services rendered in connection with the termination of a retirement plan established under § 401(k) of the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. § 1001 et seq. (“ERISA”), and to authorize payment of those fees from the assets of the retirement plan.

Background

The facts are not in dispute. When the debtor, Franchi Equipment Co., filed its voluntary petition for relief under Chapter 11 of the Bankruptcy Code, 11 U.S.C. §§ 101–1532, on July 10, 2009, its employees were beneficiaries of a retirement plan established and administered by the debtor and known as the F.E.C. 401(k) Plan. On August 7, 2009 the Chapter 11 case was converted to one under Chapter 7 of the Bankruptcy Code and the Chapter 7 trustee was appointed.

On October 19, 2009, the Chapter 7 trustee filed a motion for authority to terminate the 401(k) plan which, as of October 1, 2010, had total assets of approximately $656,241.09 derived from employee contributions as well as from discretionary matching and profit sharing contributions made by the debtor. On November 23, 2009, my predecessor, Judge Joel B. Rosenthal, allowed the trustee's motion over the DOL's limited objection. Among other things, the November 23, 2009 order authorized the Chapter 7 trustee to (i) retain Penco, Inc., the third party service provider which had provided plan administration services to the debtor, to assist him in terminating the 401(k) plan, (ii) make distributions to the 401(k) plan participants and (iii) execute documents necessary to terminate the plan. In addition, the November 23, 2009 order authorized the Chapter 7 trustee to establish a reserve out of plan assets for the costs of administering and terminating the plan. The Chapter 7 trustee established a reserve of $10,000. It is this $10,000 which the trustee now seeks to disburse in payment of his and his counsel's fees.¹

In the November 23, 2009 order, Judge Rosenthal ruled that the bankruptcy court had jurisdiction to enter the order subject to the right of the DOL and any plan participant to assert claims pursuant to ERISA, “including claims that the Court lacks jurisdiction to enter any future orders regarding the Trustee's obligations and duties to the Plan.” The DOL, availing itself of this jurisdictional reservation, now challenges the bankruptcy court's jurisdiction to act on the Chapter 7 trustee's current motion.

Before discussing the issues presented by the trustee's motion, it is worth noting what the motion does not seek. The Chapter 7 trustee is not requesting a so-called “comfort order” finding that he has satisfactorily completed all of his responsibilities with respect to the 401(k) plan or an order discharging him from further responsibilities with respect to the plan. Relying on In re NSCO, 427 B.R. 165, 182 (Bankr.D.Mass.2010), the trustee has stated that he is not seeking such an order at this time. The DOL submits that were the Chapter 7 trustee to stipulate that the bankruptcy court lacked jurisdiction to enter such an order at any stage of the bankruptcy proceedings, it would acquiesce to the trustee's current motion. The trustee declines this invitation presumably because he intends to request such relief when he completes his administration of the case and files his final report. In other words the parties' dispute is not over the merits of the trustee's motion to disburse the $10,000; it is about the broader jurisdictional implications of the allowance of the motion by this Court.

Discussion

ERISA and BAPCPA

“ERISA is a comprehensive statute designed to promote the interests of employees and their beneficiaries in employee benefit plans.” NSCO, 427 B.R. at 173 quoting Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 90, 103 S.Ct. 2890, 2896, 77 L.Ed.2d 490 (1983). In order to achieve that goal, a trustee of a plan under ERISA is impressed with the duties “of trustees under an express trust—the highest known to the law....” Donovan v. Bierwirth, 680 F.2d 263, 272 n. 8 (2d Cir.1982). Breach of these duties subjects the fiduciary to personal liability. 29 U.S.C. §§ 1109(a), 1132(a)(2), (3), and (5). Id. (Internal quotation marks omitted).

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109–8, 119 Stat. 23 (2005) (“BAPCPA”), introduced sweeping amendments to the Bankruptcy Code. It added § 704(a)(11) which provides that a trustee shall

if, at the time of the commencement of the case, the debtor (or any entity designated by the debtor) served as the administrator (as defined in section 3 of the Employee Retirement Income Security Act of 1974) of an employee benefit plan, continue to perform the obligations required of the administrator.

Under § 704(a)(11), the Chapter 7 trustee in this case was required and has continued to perform the obligations of the administrator of the debtor's 401(k) plan. Regrettably, “[a]lthough ... a bankruptcy trustee must continue to perform a debtor-plan administrator's obligations, the Bankruptcy Code and Rules provide no further directives as to how to meld the trustee's bankruptcy and ERISA responsibilities.” NSCO, 427 B.R. at 174. The Bankruptcy Code is clear, however, that funds withheld by a debtor-employer from employee wages or received from employees as contributions to a retirement plan are not property of the bankruptcy estate. Bank ruptcy Code § 541(b)(7).²

Bankruptcy Court Jurisdiction

The reported case law addressing a bankruptcy court's jurisdiction with respect to a Chapter 7 trustee's ERISA obligations is scant and inharmonious. Compare In re Mid–States Express, Inc. 433 B.R. 688 (Bankr.N.D.Ill.2010) (finding no bankruptcy court jurisdiction), and AB & C Group, Inc., 411 B.R. 284 (Bankr.N.D.W.Va.2009) (same) with In re Robert Plan Corp., 439 B.R. 29 (Bankr.E.D.N.Y.2010) (finding that the bankruptcy court had core jurisdiction), and NSCO (same). See also Allard v. Coenen (In re Trans–Industries, Inc.), 419 B.R. 21 (Bankr.E.D.Mich.2009) (taking a third approach by finding that the bankruptcy court had related-to jurisdiction).

Jurisdiction over bankruptcy cases and proceedings is reserved to the United States district courts. The district court has original and exclusive jurisdiction over “cases under title 11.” 28 U.S.C. § 1334(a). The district court has original but not exclusive jurisdiction over “civil proceedings arising under title 11, or arising in or related to cases under title 11.” 28 U.S.C. § 1334(b). The district courts may refer cases under title 11 as well as civil proceedings that arise under title 11 or arise in or are related to cases under title 11 to the bankruptcy courts. 28 U.S.C. § 157(a). “In Massachusetts, the district court has referred to the bankruptcy court the broadest possible universe of cases which a bankruptcy court could hear, namely all cases over which the district court may exercise jurisdiction under either § 1334(a) or (b).” NSCO, 427 B.R. at 176. Chief Justice Roberts, writing for the majority in Stern v. Marshall, –––U.S. ––––, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011), offered a concise overview of a bankruptcy court's jurisdiction to hear and determine matters before it expressed in terms of core and non-core jurisdiction.

The manner in which a bankruptcy judge may act on a referred matter depends on the type of proceeding involved. Bankruptcy judges may hear and enter final judgments in “all core proceedings arising under title 11, or arising in a case under title 11.” § 157(b)(1). “Core proceedings include, but are not limited to” 16 different types of matters, including “counterclaims by [a debtor's] estate against persons filing claims against the estate.” § 157(b)(2)(C). Parties may appeal final judgments of a bankruptcy court in core proceedings to the district court, which reviews them under traditional appellate standards. See § 158(a); Fed. Rule Bkrtcy. Proc. 8013.

When a bankruptcy judge determines that a referred “proceeding ... is not a core proceeding but ... is otherwise related to a case under title 11,” the judge may only “submit proposed findings of fact and conclusions of law to the district court.” § 157(c)(1). It is the district court that enters final judgment in such cases after reviewing de novo any matter to which a party objects. Ibid.

Id. at 358–59, 131 S.Ct. at 2603–04.

A “case under title 11” is the case instituted by the bankruptcy petition itself. 1 Collier on Bankruptcy ¶ 3.01[2], at 3–12 to 3–13 (L. King et al. eds., 16th rev. ed. 2011) (“The ‘case’ referred to in section 1334(a) is the umbrella under which all of the proceedings that follow the filing of a bankruptcy petition take place.”). “[A]rising under” proceedings are (at least) those cases in which the cause of action is created by title 11.... “Arising in” proceedings generally are those that are not based on any right expressly created by title 11, but nevertheless, would have no existence outside of bankruptcy. [ Wood v. Wood (In re Wood), 825 F.2d 90, 97 (5th Cir.1987) ]. “[R]elated to” proceedings [are] proceedings which “potentially have some effect...