In re Hnrc Dissolution Co., 06-8067.

• Citation: 396 B.R. 461
• Decision Date: 04 November 2008
• Docket Number: No. 06-8067.,06-8067.
• Parties: In re HNRC DISSOLUTION CO. f/k/a Horizon Natural Resources Company, et al., Debtors. United Mine Workers of America 1974 Plan and Trust, et al., Appellants, v. Lexington Coal Company, LLC, Appellee.
• Court: Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Sixth Circuit

396 B.R. 461

In re HNRC DISSOLUTION CO. f/k/a Horizon Natural Resources Company, et al., Debtors United Mine Workers of America 1974 Plan and Trust, et al., Appellants, v. Lexington Coal Company, LLC, Appellee.

No. 06-8067.

United States Bankruptcy Appellate Panel of the Sixth Circuit.

Argued: May 2, 2007.¹

Decided and Filed: November 4, 2008.

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John C. Goodchild, III, Morgan, Lewis & Bockius, LLP, Philadelphia, PA, Mark Murphy, Richard C. Welch, Mooney, Green, Baker & Samdon, P.C., Washington, D.C., Jerome J. Metz, Jr., Porter Wright Morris & Arthur LLP, Cincinnati, OH, for Appellants.

Gregory R. Schaaf, John F. Billings, Greenebaum Doll & McDonald Pllc, Lexington, KY, C.R. Bowles, Benjamin J. Evans, Raja J. Patil, Greenebaum Doll & McDonald Pllc, Louisville, KY, for Appellee.

Before: AUG, GREGG, and PARSONS, Bankruptcy Appellate Panel Judges.

OPINION

JAMES D. GREGG, Bankruptcy Judge.

Horizon Natural Resources Company and several of its subsidiaries and affiliates (collectively, the "Debtors") participated in a multiemployer pension plan, the United Mine Workers of America 1974 Pension Plan and Trust ("1974 Plan"), until the Debtors terminated operations approximately two years after filing their chapter 11 cases. Termination of the Debtors' operations constituted a complete withdrawal from the 1974 Plan and caused the Debtors to incur withdrawal liability under ERISA. The 1974 Plan appeals the bankruptcy court's order denying its application for allowance of a $36,248,771 administrative expense claim. The 1974 Plan asserts that this amount represents the portion of the Debtors' total withdrawal liability that relates to the Debtors' postpetition operations. For the reasons that follow, the bankruptcy court's order is AFFIRMED.

I. ISSUES ON APPEAL

The overarching issue in this appeal appears to be deceptively simple: did the bankruptcy court abuse its discretion when it determined that the postpetition portion of the 1974 Plan's withdrawal liability claim was not entitled to administrative expense priority? However, the answer to this broad question requires consideration of two complex and difficult sub-issues: (1) did the bankruptcy court err when it concluded that the 1974 Plan failed to establish that the withdrawal liability, or a portion thereof, represented a "direct and substantial benefit" to the Debtors' bankruptcy estate under the "benefit to the estate" test established by the United States Court of Appeals for the Sixth Circuit in Pension Benefit Guar. Corp. v. Sunarhauserman, Inc. (In re Sunarhauserman, Inc.), 126 F.3d 811, 816 (6th Cir. 1997); and (2) did the bankruptcy court err when it applied the "benefit to the estate" test, because the exception set forth by the United States Supreme Court in Reading Co. v. Brown, 391 U.S. 471, 88 S.Ct. 1759, 20 L.Ed.2d 751 (1968), may apply to the withdrawal liability claim?

II. JURISDICTION AND STANDARD OF REVIEW

The Bankruptcy Appellate Panel of the Sixth Circuit has jurisdiction to decide this appeal. The United States District Court for the Eastern District of Kentucky has authorized appeals to the Panel, and a final order of the bankruptcy court may be appealed by right under 28 U.S.C. § 158(a)(1). For the purpose of an appeal, an order is final if it "ends the litigation on the merits and leaves nothing for the court to do but execute the judgment." Midland Asphalt Corp. v. United States, 489 U.S. 794, 798, 109 S.Ct. 1494, 1497, 103 L.Ed.2d 879 (1989). The bankruptcy court's order denying the 1974 Plan's application for an administrative expense claim is a final order. Volvo Commercial Fin. LLC the Americas v. Gasel Transp. Lines, Inc. (In re Gasel Transp. Lines, Inc.), 326 B.R. 683, 685 (6th Cir. BAP 2005) ("An order determining that a claim is not entitled to administrative expense priority constitutes a final order.").

This Panel reviews the bankruptcy court's denial of administrative expense priority status for an abuse of discretion. See Beneke Co. v. Econ. Lodging Sys., Inc. (In re Econ. Lodging Sys., Inc.), 234 B.R. 691, 693 (6th Cir. BAP 1999). The bankruptcy court's ruling on the 1974 Plan's motion for reconsideration is also reviewed under the abuse of discretion standard. See Eglinton v. Loyer (In re G.A.D., Inc.), 340 F.3d 331, 334 (6th Cir.2003) (denial of a Rule 60(b) motion is reviewed for abuse of discretion); Heath v. Am. Express Travel Related Servs. Co. (In re Heath), 331 B.R. 424, 429 (9th Cir. BAP 2005) (denial of a motion to reconsider allowance or disallowance of a claim under Rule 3008 is reviewed for abuse of discretion). "An abuse of discretion occurs only when the trial court relies upon clearly erroneous findings of fact or when it improperly applies the law or uses an erroneous legal standard." Schmidt v. Boggs (In re Boggs), 246 B.R. 265, 267 (6th Cir. BAP 2000). "The question is not how the reviewing court would have ruled, but rather whether a reasonable person could agree with the bankruptcy court's decision; if reasonable persons could differ as to the issue, then there is no abuse of discretion." Mayor of Baltimore, Md. v. W. Va. (In re Eagle-Picher Indus., Inc.), 285 F.3d 522, 529 (6th Cir.2002); Lebovitz v. Hagemeyer (In re Lebovitz), 360 B.R. 612, 615 (6th Cir. BAP 2007).

III. FACTS

The Debtors were parties to collective bargaining agreements with the United Mine Workers of America ("UMWA"). These agreements, known as National Bituminous Coal Wage Agreements ("NBCWAs"), governed the terms and conditions of employment of the UMWA-represented miners by establishing applicable wages and benefits to be paid to the miners by the Debtors. Among the benefits established under the NBCWAs was the requirement that the Debtors participate in the 1974 Plan. The 1974 Plan is an irrevocable trust established pursuant to § 302(c)(5) of the Labor-Management Relations Act, see 29 U.S.C. § 186(c)(5), and is also a multiemployer defined benefit pension plan under § 3(37)(A) of ERISA, see 29 U.S.C. § 1002(37)(A). Miners employed by the Debtors accrued pension and death benefits in the 1974 Plan for every hour they worked under the NBCWAs.

ERISA requires pension plans, such as the 1974 Plan, to maintain assets sufficient to meet future pension liabilities. See 29 U.S.C. § 1052. To meet this requirement, participating employers are subject to two distinct types of liability—periodic contributions and withdrawal liability. The periodic contribution rates are established through collective bargaining and are set forth in the NBCWAs. Under the NBCWAs, the contributions required by the 1974 Plan were based upon the hours worked by each UMWA miner. Withdrawal liability, by contrast, is imposed by federal statute, see 29 U.S.C. § 1381, and represents an employer's obligation upon its withdrawal from a multiemployer pension plan to pay its proportionate share of the plan's total unfunded vested benefits.² Unfunded vested benefits (sometimes referred to as "UVBs") are defined under the statute as the difference between the present value of vested benefits and the current value of the plan's assets. See 29 U.S.C. § 1391.

On November 13 and 14, 2002, the Debtors filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code.³ The Debtors operated their businesses as debtors-in-possession for almost two years after their cases were commenced. During that time, they employed over 1,000 UMWA-represented employees. The Debtors estimate that their employees worked a combined total of 2,976,962 hours during the postpetition period.

While operating postpetition, the Debtors paid all necessary wages and made all required contributions for benefits due to employees under the NBWCAs. In fact, during the terms of the 1998 and 2002 NBCWAs, participating employers, including the Debtors, were not required to make any contributions to the 1974 Plan. Because the 1974 Plan was fully funded at that time, pursuant to a provision in the 1998 NBCWA, requisite employer contributions were zero cents per hour. However, in the plan year ending June 30, 2001, an actuarial funding deficit arose between the future value of vested benefits and the 1974 Plan assets. According to the 1974 Plan, the deficit resulted from a number of factors, including a dip in the stock market, lack of incoming contributions, and changes in pensions. As a result, the 1974 Plan began to report unfunded vested benefits during the plan year ending June 30, 2001.

After unsuccessfully attempting to reorganize during the postpetition period, the Debtors determined to sell substantially all of their assets. On July 11, 2004, the Debtors filed their Third Amended Joint Plan of Reorganization and Third Amended Joint Plan of Liquidation (the "Chapter 11 Plans"). As contemplated by the Chapter 11 Plans, a court-approved auction sale of the Debtors' assets was held on August 17, 2004. Lexington Coal Company, LLC ("Lexington Coal"), the Appellee in the present appeal, was among the successful purchasers. On September 16, 2004, the bankruptcy court entered orders confirming the Chapter 11 Plans. On September 30, 2004, the Debtors consummated the sale of their assets to the approved purchasers, including Lexington Coal;⁴ the Chapter 11 Plans became effective; and the Debtors rejected the NBCWAs.⁵ In accordance with the court's orders confirming the Chapter 11 Plans, the Debtors were then deemed dissolved.

The 1974 Plan asserts, and Lexington Coal does not dispute, that the Debtors terminated covered operations on September 27, 2004.⁶ According to the 1974 Plan, this cessation of operations constituted a complete withdrawal from the 1974 Plan during the Plan year ending June 30, 2004.6 Because the 1974 Plan had unfunded vested benefits at that time, the Debtors' withdrawal from the 1974 Plan gave rise to withdrawal liability under ERISA.

On December 27, 2004, the 1974 Plan filed an administrative expense claim for...