In re Howard Delivery Service, Inc.

• Decision Date: 24 March 2005
• Docket Number: No. 04-1136.,04-1136.
• Citation: 403 F.3d 228
• Parties: In Re: HOWARD DELIVERY SERVICE, INCORPORATED, Debtor. Howard Delivery Service, Incorporated, Debtor-Appellee, v. Zurich American Insurance Company, Movant-Appellant. American Home Assurance Company; Hartford Fire Insurance Company; The Travelers Indemnity Company, Amici Supporting Appellant.
• Court: U.S. Court of Appeals — Fourth Circuit

403 F.3d 228

In Re: HOWARD DELIVERY SERVICE, INCORPORATED, Debtor.

Howard Delivery Service, Incorporated, Debtor-Appellee, v. Zurich American Insurance Company, Movant-Appellant.

American Home Assurance Company; Hartford Fire Insurance Company; The Travelers Indemnity Company, Amici Supporting Appellant.

No. 04-1136.

United States Court of Appeals, Fourth Circuit.

Argued: October 28, 2004.

Decided: March 24, 2005.

ARGUED: Margaret Mary Anderson, Lord, Bissell & BROOK, Chicago, Illinois, for Appellant. Richard McMaster Francis, Bowles, Rice, McDavid, Graff & Love, P.L.L.C., Charleston, West Virginia, for Appellee. G. Eric Brunstad, Jr., Bingham McCutchen, L.L.P., for Amici Supporting Appellant. ON BRIEF: Hugh S. Balsam, Timothy S. McFadden, Lord, Bissell & Brook, Chicago, Illinois, for Appellant. Heather G. Harlan, Bowles, Rice, McDavid, Graff & Love, P.L.L.C., Charleston, West Virginia, for Appellee.

Before NIEMEYER, KING, and SHEDD, Circuit Judges.

Reversed and remanded by published per curiam opinion. Judge King wrote an opinion concurring in the judgment, Judge SHEDD wrote an opinion concurring in the judgment, and Judge NIEMEYER wrote an opinion dissenting from the judgment.

OPINION

PER CURIAM:

This appeal presents the question of whether the claim made by Zurich American Insurance Company against the estate of the debtor, Howard Delivery Service, Inc., for unpaid workers' compensation insurance premiums is to be given priority by reason of § 507(a)(4) of the Bankruptcy Code. The court holds that Zurich's claim is entitled to priority under § 507(a)(4) and therefore reverses the decision of the district court and remands the case for such further proceedings as may be appropriate.

REVERSED AND REMANDED

KING, Circuit Judge, concurring in the judgment:

In this appeal by Zurich American Insurance Company ("Zurich"), we are called upon to decide whether a claim by Zurich for unpaid workers' compensation insurance premiums is entitled to priority status under § 507(a)(4) of the Bankruptcy Code. Zurich maintains that its claim is so entitled, asserting that such premiums constitute, under the applicable statutory provision, "contributions to an employee benefit plan arising from services rendered." 11 U.S.C. § 507(a)(4). Both the bankruptcy court and the district court disagreed with Zurich, relegating its claim to the status of a general unsecured creditor of the bankrupt Howard Delivery Service, Inc. ("Howard"). As explained below, I conclude, on this question of first impression, that Zurich's claim is entitled to § 507(a)(4) priority status.

I.

Under West Virginia law, employers in the state are required to "subscribe to and pay premium taxes into the [state's] workers' compensation fund for the protection of their employees." W. Va.Code § 23-2-1(a). In the alternative, an employer may self-insure by, among other requirements, demonstrating its financial ability to cover any workers' compensation claims that may arise. Id. at § 23-2-9. Howard, an over-the-road freight carrier operating in West Virginia, fulfilled its obligations under West Virginia law to become "self-insured" and purchased workers' compensation insurance coverage from Zurich (the "Policy").¹ The Policy became effective on July 1, 1997, and remained in effect until January 22, 2002, when it was cancelled by Howard. Upon cancellation, Howard owed Zurich thousands of dollars in unpaid premiums for coverage afforded by the Policy.²

On January 30, 2002, Howard filed a Chapter 11 bankruptcy petition in the bankruptcy court for the Northern District of West Virginia, seeking court protection in the reorganization of its business operations. On May 9, 2002, Zurich filed an unliquidated and unsecured creditor's claim in that proceeding, seeking priority status from the bankruptcy court for its claim for the unpaid premiums owed on the Policy.³ On March 28, 2003, Zurich filed an amended proof of claim, specifically asserting that its claim was entitled to priority status under § 507(a)(4) of the Bankruptcy Code (the "Statute"), for contributions to an employee benefit plan in the sum of $410,215 (the "Zurich Claim").⁴ Pursuant to the Statute, a creditor of a Chapter 11 debtor is authorized to recover on a fourth-level priority basis as follows:

(a) The following expenses and claims have priority in the following order:

....

(4) Fourth, allowed unsecured claims for contributions to an employee benefit plan —

(A) arising from services rendered within 180 days before the date of the filing of the petition or the date of the cessation of the debtor's business, whichever occurs first....

11 U.S.C. § 507(a)(4).⁵ On June 12, 2003, Howard filed an objection to the amount of the Zurich Claim, and specifically to Zurich's assertion that the Claim was entitled to priority status.

By an opinion filed on July 15, 2003, the bankruptcy court denied the Zurich Claim priority status, concluding that unpaid workers' compensation premiums are not "bargained-for, wage-substitute-type benefits," relying on materials it identified in the legislative history of the Statute. In re: Howard Delivery Serv., Inc., BK No. 02-30289, at *5 (Bankr.N.D.W.Va.) (the "Bankruptcy Opinion") (observing also that three courts of appeals had so ruled while only one had determined otherwise). Zurich appealed the Bankruptcy Opinion to the district court, which affirmed, on December 22, 2003, on similar grounds. Howard Delivery Serv., Inc. v. Zurich Am. Home Ins. Co. (In re: Howard Delivery Serv., Inc.), No. 3:03CV61, at *11 (N.D.W.VA.) (the "District Opinion"). Zurich has now appealed to this Court, contending that the Zurich Claim is entitled to priority status because the unpaid insurance premiums embodied therein constitute "contributions to an employee benefit plan arising from services rendered" under the Statute. We possess jurisdiction to consider Zurich's appeal because, in these circumstances, the District Opinion and the corresponding Judgment in a Civil Case, filed on December 22, 2003, constitute a final decision of the district court under 28 U.S.C. § 158(d).⁶

II.

Zurich's appeal concerns the meaning and application of the Statute, which constitutes a question of law that we review de novo. See Loudoun Leasing Dev. Co. v. Ford Motor Credit Co., 128 F.3d 203, 206 (4th Cir.1997). In construing the meaning of a statutory provision, we are obliged to utilize the well-settled two-step process explained in a long series of decisions, including Newport News Shipbuilding & Dry Dock Co. v. Brown, 376 F.3d 245, 248 (4th Cir.2004). First, we must ascertain whether the language of the statutory provision is plain or ambiguous. If the provision is drawn in plain and unambiguous terms, we simply apply the statute's plain meaning. Alternatively, if the language of the statutory provision is ambiguous we proceed to the second step in the process and seek to ascertain the meaning intended by Congress when the provision was enacted. In the context of the Bankruptcy Code, it is presumed that a debtor's resources should be equally distributed among the creditors, and statutory priorities are therefore to be narrowly construed. See In re: Merry-Go-Round Enter., Inc., 180 F.3d 149, 157 (4th Cir.1999) (observing general "presumption in bankruptcy cases that all of a debtor's limited resources will be equally distributed among creditors").

III.

In assessing whether the Zurich Claim is entitled to priority status under the Statute, I first briefly review the split of authority in the federal courts as to whether claims for unpaid insurance premiums are so entitled. As explained below, I am of the view that the pertinent statutory terms — "contributions," "employee benefit plan," and "services rendered" — are plain and unambiguous. I am therefore obliged to apply the Statute to the Zurich Claim and, in so doing, conclude that it is entitled to priority status thereunder.

A.

The issue presented by Zurich has been previously considered by several other courts, and they disagree on whether a debtor's unpaid premiums for workers' compensation insurance constitute "contributions to an employee benefit plan arising from services rendered," and on whether a bankruptcy claim for such premiums is thereby entitled to fourth-level priority status under the Statute. Compare Travelers Prop. Cas. Corp. v. Birmingham-Nashville Express, Inc. (In re: Birmingham-Nashville Express, Inc.), 224 F.3d 511 (6th Cir.2000) (denying priority status), State Ins. Fund v. S. Star Foods, Inc. (In re: S. Star Foods, Inc.), 144 F.3d 712 (10th Cir.1998) (same), and Employers Ins. of Wausau, Inc. v. HLM Corp. (In re: HLM Corp.), 62 F.3d 224 (8th Cir.1995) (same), with Employers Ins. of Wausau v. Plaid Pantries, Inc., 10 F.3d 605 (9th Cir.1993) (affording priority status). This disagreement among the courts rests upon opposing constructions of the Statute: the Ninth Circuit (and various district and bankruptcy courts) deeming the Statute to be unambiguous and affording priority to such claims; while the Sixth, Tenth, and Eighth Circuits (as well as several district and bankruptcy courts) have concluded that the Statute's legislative history precludes priority status being accorded to such claims. These divergent views deserve some further examination.

1.

The first line of decisions addressing bankruptcy claims for unpaid insurance premiums, including the Ninth Circuit's decision in Plaid Pantries, has found the Statute to be unambiguous, and thus reasoned that legislative history need not be considered. Relying on the Statute's plain meaning, those courts have concluded that the Statute accords priority status to such claims as "contributions to an employee benefit plan arising from services rendered" under the Statute. See Plaid Pantries, 10 F.3d at 607 (according priority status to claim for unpaid workers' compensation premiums); Saco, 711 F.2d at 449 (according priority status to claim for unpaid employee...