In re Lull Corp., Bankruptcy No. 4-92-1680.
| Decision Date | 30 December 1993 |
| Docket Number | Bankruptcy No. 4-92-1680. |
| Citation | 162 BR 234 |
| Parties | In re LULL CORPORATION, Erickson Corporation, Debtors. |
| Court | U.S. Bankruptcy Court — District of Minnesota |
William Fisher, Gray, Plant, Mooty, Mooty & Bennett, Minneapolis, MN, for trustee.
Steven W. Meyer, Oppenheiemer, Wolff & Donnelly, Minneapolis, MN, for Minnesota Self-Insurers' Sec. Fund.
The above-entitled matter came on for hearing before the undersigned on the 9th day of September, 1993, on the trustee's objection to Minnesota Self-Insurers' Security Fund's ("MSISF") proof of claim. Appearances were as follows: William Fisher for the trustee; and Steven Meyer for MSISF.
1. MSISF is a nonprofit corporation created by Chapter 79A of the Minnesota Statutes ("Chapter 79A"), which provides for workers' compensation self-insurance. The purpose of MSISF is to continue payment of workers' compensation benefits delayed due to the insolvency of a private self-insurer. Minn.Stat. § 79A.08 (1992).
2. Pursuant to Chapter 79A, upon an order of the Minnesota Commissioner of Commerce ("Commissioner"), MSISF "shall assume the workers' compensation obligations of an insolvent private insurer." Minn.Stat. § 79A.10, subd. 1 (1992). Chapter 79A also provides that MSISF "shall have the right and obligation to obtain reimbursement from an insolvent private insurer up to the amount of the private self-insurer's workers' compensation obligations paid and assumed by the security fund, including reasonable administrative and legal costs." Minn.Stat. § 79A.11, subd. 1 (1992). To carry out its obligation, MSISF may assess each of its self-insured members. Minn.Stat. § 79A.12, subd. 2 (1992).
3. In order to qualify as a self-insurer, an employer must post security for its workers' compensation liability to cover payments if the employer defaults or becomes insolvent. Minn.Stat. § 79A.04, subd. 3 (1992).
4. Lull Corporation ("Debtor") was a self-insured employer. In accordance with Chapter 79A, Debtor secured its potential workers' compensation obligations by posting a letter of credit in the amount of $523,000 ("Letter of Credit").
5. Debtor closed its Minnesota manufacturing operations in the spring of 1991. On March 3, 1992, Debtor filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code. Soon thereafter, MSISF assumed Debtor's workers' compensation obligations. By the time of the hearing on this matter, MSISF had drawn down on the Letter of Credit in the approximate amount of $523,000. By now, it is assumed, MSISF has exceeded the amount of the Letter of Credit.
6. MSISF filed its initial proof of claim on July 16, 1992. On November 23, 1992, MSISF filed its second amended proof of claim ("claim") in the amount of $672,058.27. MSISF asserts the following basis for its claim: $72,485 in workers' compensation obligations already paid, along with the resulting expenses; $1,113,480 in estimated future obligations and expenses; and $9,093.27 in assessments, minus $523,000 from the Letter of Credit. The portion of the claim representing the assessments is not in dispute. The amount of the claim represents paid and estimated benefits and costs in excess of $523,000.
7. The claim is in response to claims made to MSISF by the Debtor's employees who are entitled to workers' compensation benefits ("employees"). While the employees' injuries arose pre-petition, their claims have been and are to be paid post-petition.
8. MSISF indicates the amount of the claim is subject to change. According to MSISF, as of May 31, 1993, it had paid $409,776 of Debtor's workers' compensation obligations, and MSISF expected additional obligations of $785,282. By September, 1993, MSISF was close to having drawn down the $523,000 Letter of Credit, further reducing the amount of the claim for future payments and expenses. Currently, it is assumed MSISF has been required to make payments out of pocket since having exceeded the amount of the Letter of Credit.
9. The trustee now objects to the claim for payments made and to be made and costs incurred and to be incurred, asserting that it is disallowed as a contingent claim pursuant to § 502(e)(1)(B). In the event it is allowed, the trustee argues it is a general unsecured claim.
10. MSISF contends that the claim is not disallowed under § 502(e)(1)(B) but rather should be allowed as either a wage priority claim, an administrative expense, or a general unsecured claim.
11. The parties have stipulated to submit the legal issues prior to the resolution of the factual issues. Accordingly, the sole issue is whether MSISF's claim for benefits and expenses in excess of $523,000 is allowed and, if so, the status of the claim.
MSISF bifurcates its claim into two components: the estimated workers' compensation obligations MSISF will be liable for; and the estimated costs MSISF will incur in administering all the Debtor's uninsured workers' compensation obligations. The claim does not consist of any claims paid by MSISF up to the Letter of Credit amount. The two components of the claim will be addressed separately.
The Bankruptcy Code provides that a creditor's claim shall be allowed except that:
11 U.S.C. § 502(e)(1)(B).
This provision reflects two Congressional policies. First, it allows for the expeditious resolution of issues so as not to burden the estate by claims which have not come to fruition. In re A & H, Inc., 122 B.R. 84, 85 (Bankr.W.D.Wis.1990), quoting Greatamerican Fed. Sav. & Loan Ass'n v. Adcock Excavating, Inc., No. 89 C 3794, 1990 WL 51219, at *3 (N.D.Ill. Apr. 17, 1990). Second, it "prevents competition between a creditor and his guarantor for the limited proceeds of the estate." H.R.Rep. No. 595, 95th Cong., 1st Sess. 354 (1977); S.Rep. No. 989, 95th Cong., 2d Sess. 65 (1978); U.S.Code Cong. & Admin.News 1978, pp. 5787, 5851, 6310. Therefore, it seeks to preclude redundant recoveries on identical claims, or "double-dipping." Juniper Dev. Group v. Kahn (In re Hemingway Transport, Inc.), 993 F.2d 915, 923 (1st Cir.1993).
Section 502(e)(1)(B) requires that a proof of claim be disallowed when the following three elements are present: (1) the claim is one for reimbursement or contribution; (2) the entity asserting the claim is liable with the debtor on the claim of the creditor; and (3) the claim is contingent at the time of its allowance or disallowance. Al Tech Specialty Steel Corp. v. Allegheny Int'l, Inc. (In re Allegheny Int'l, Inc.), 126 B.R. 919, 921 (W.D.Pa.1991); In re Provincetown-Boston Airlines, Inc., 72 B.R. 307, 309 (Bankr. M.D.Fla.1987).
1. Claim for reimbursement
The claim is clearly for reimbursement. MSISF concedes as much. The fact that reimbursement by Debtor to MSISF for amounts MSISF has paid is mandated by statute does not affect the underlying nature of the claim as being one for reimbursement.
2. Liable with the debtor on the claim of a creditor
The Code defines "claim" as a "right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured." 11 U.S.C. § 101(5)(A). In the present case, "the claim" is the workers' compensation benefits that the employees are legally entitled to pursuant to Minnesota's workers' compensation laws. See Minn.Stat. § 176.021 (1992).
The Code defines "creditor" as an "entity that has a claim against the debtor that arose at the time of or before the order for relief concerning the debtor." 11 U.S.C. § 101(10)(A). Here, the creditors are the employees who were injured pre-petition and are entitled to benefits under state law.
The phrase "is liable with the debtor on . . . the claim of the creditor" is "broad enough to encompass any type of liability shared with the debtor, whatever its basis." In re Baldwin-United Corp., 55 B.R. 885, 890 (Bankr.S.D.Ohio 1985). The co-liability does not need to be judicially established. In re Amatex Corp., 110 B.R. 168, 168 (Bankr.E.D.Pa.1990). Nor must the liability be contractually established. Baldwin-United, 55 B.R. at 890. Under this broad standard, the liability can be statutory.
Therefore, it must be determined whether both Debtor and MSISF are legally obligated to pay the employees for workers' compensation benefits. The resolution of this issue hinges on the interpretation of Chapter 79A, of which there are no reported cases.
MSISF is clearly liable to the employees. Pursuant to Chapter 79A, MSISF is required to assume the workers' compensation obligations of an insolvent private self-insurer. Minn.Stat. § 79A.10, subd. 1 (1992). Having done this, MSISF has the right to immediate possession of the $523,000 Letter of Credit. See Minn.Stat. § 79A.04, subd. 10 (1992). Payments are to be made first from the Letter of Credit and then, after the security has been exhausted, from the members' assessment account which is entitled to reimbursement. Minn.Stat. § 79A.04, subd. 11 (1992). Finally, Chapter 79A provides that "the payment of benefits by MSISF from security deposit proceeds shall release and discharge . . . the self-insured employer from liability to fulfill obligations to provide those same benefits as compensation, but does not release any person or entity from any liability to the security fund for full reimbursement." Minn.Stat. § 79A.04, subd. 13 (1992).
MSISF asserts, however, that it is not liable with the Debtor because, under Chapter 79A, the debtor is no longer liable to the...
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