In re NSCO, Inc., 08-43494-JBR.

• Decision Date: 29 March 2010
• Docket Number: No. 08-43494-JBR.,08-43494-JBR.
• Citation: 427 B.R. 165
• Parties: In re NSCO, INC., Debtor.
• Court: U.S. Bankruptcy Court — District of Massachusetts

427 B.R. 165

In re NSCO, INC., Debtor.

No. 08-43494-JBR.

United States Bankruptcy Court, D. Massachusetts.

March 29, 2010.

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Joseph H. Baldiga, Mirick, O'Connell, Demallie, Lougee, Worcester, MA, for Debtor.

MEMORANDUM OF DECISION ON TRUSTEE'S EXPEDITED MOTION (1) TO TERMINATE (A) 401(K) PLAN AND (B) DEFINED BENEFIT PENSION PLAN AND (2) FOR RELATED RELIEF # 82

JOEL B. ROSENTHAL, Bankruptcy Judge.

This matter originally came before the Court for a hearing on the Trustee's Expedited Motion (1) To Terminate (A) 401(k) Plan and (B) Defined Benefit Pension Plan and (2) For Related Relief # 82 (the "Termination Motion") and the Limited Objection to the Notice of 401(k) Plan Termination # 178 filed by Hilda L. Solis, Secretary of Labor for the United States Department of Labor ("DOL"). In addition to authority to terminate the plans, the Chapter 7 Trustee sought approval of a proposed procedure for terminating each plan and receiving a discharge from any further duties imposed by 11 U.S.C. § 704(a)(11) and a release from liability from any claims relating to either of the plans. It is the Court's jurisdiction to enter a release and discharge which forms the basis for the DOL's Limited Objection.

FACTS AND TRAVEL OF THE CASE

Prior to the Debtor's filing its Chapter 7 petition on October 29, 2008, the Debtor was the administrator of both a defined benefit plan¹ and a defined contribution plan (the "401(k) Plan") pursuant to the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001, et seq. As of the Petition Date, all of the 401(k) Plan participants had removed their funds from the 401(k) Plan. Although the 401(k) Plan had no funds, it had not been terminated and therefore Jonathan Goldsmith, the duly appointed Chapter 7 Trustee, was impressed with the duty to "continue to perform the obligations required of the administrator." 11 U.S.C. § 704(a)(11). To help him in the performance of those duties, the Court authorized the Trustee to retain Joseph H. Baldiga and the law firm of Mirick, O'Connell, DeMallie & Lougee, LLP as special counsel ("Special Counsel").

On January 23, 2009, after confirming that the 401(k) Plan had a zero balance, the Trustee filed the Termination Motion in which he sought permission to terminate the 401(k) Plan. The Termination Motion also set forth a two-step process for terminating the 401(k) Plan, obtaining an order declaring that the Trustee had fully complied with his obligations under 11 U.S.C. § 704(a)(11), and discharging him and Special Counsel, and presumably any other professional retained to assist in the termination process, from any past or future liability related to the 401(k) Plan. Under the first step the Trustee proposed to authorize the third-party plan administrator² to prepare and file the final Annual Report/Form 5500 for submission to the Internal Revenue Service³ and to provide each 401(k) Plan participant with a copy of the participant's Account Statement and the Summary Annual Report prepared by the third-party plan administrator. Upon completion of the tasks outlined in step one, the Trustee represented that the termination process would be complete and no further action would be required.

After completion of the termination process, the second step would go into effect. Step two provided that the Trustee would (1) file his affidavit attesting to his completion of the termination process and satisfaction of his responsibilities under 11 U.S.C. § 704(a)(11); (2) have Special Counsel file an interim fee application, which fees would be paid by the bankruptcy estate as the 401(k) Plan had no funds; and (3) send a notice he termed a "Notice of 401(k) Plan Termination, Deadline to Request Payment of Claims Related to 401(k) Plan, Deadline to Provide Written Notice of Intent to Audit 401(k) Plan, Request for Approval and Payment from Estate Assets of Certain 401(k) Plan Termination Expenses, and All Deadlines Related Thereto" (the "Termination Notice") to all parties in interest, including the DOL. As its descriptive title states, the Termination Notice sought to accomplish several things: (1) to give all Plan participants, government agencies and other parties in interest notice that the 401(k) Plan had been terminated and that the Trustee had filed an affidavit attesting to the termination; (2) to give notice of Special Counsel's request for fees and expenses; and (3) to give parties 60 days after the filing of the Termination Notice and Affidavit of Termination in which to file any of the following: (a) objections to Special Counsel's fees and expenses, (b) any "claims related to the 401(k) Plan" and (c) notice of any intent to audit the 401(k) Plan. The Termination Notice also contained a statement that, absent any timely objections or the filing of claims or notice of intent to audit, the Court could enter an order deeming the Trustee's obligations under § 704(a)(11) fully satisfied and barring the assertion of any claims related to the 401(k) Plan. The proposed "Order (1) Approving Termination of 401(k) Plan; (2) Authorizing Payment of Expenses Related Thereto; and (3) Deeming Satisfied Trustee's Obligations Pursuant to Bankruptcy Code § 704(a)(11)" (the "Proposed Order") provided in pertinent part:

(B) Any and all claims related to the 401(k) Plan and the termination thereof, other than the termination expenses are forever barred; and

(C) The Trustee has satisfied his obligations under Bankruptcy Code § 704(a)(11) as those duties relate to the 401(k) Plan and shall have no remaining liability and/or obligations related thereto.

Copies of the proposed forms of the Termination Notice, the Trustee's Affidavit and the Proposed Order were attached to the Termination Motion.

The DOL and all 401(k) Plan participants were served with a copy of the Termination Motion and its various attachments. No party objected to the termination of the 401(k) Plan, the proposed two-step process, or any portion of the proposed form of the Termination Notice. After a hearing, the Court authorized the Trustee to terminate the 401(k) Plan and approved the proposed Termination Notice.

On September 15, 2009 the Trustee filed and served his Affidavit and the Termination Notice to which the Proposed Order was attached. The Termination Notice set November 16, 2009 as the deadline for objecting to Special Counsel's fees and expenses,⁴ for submitting any "claims related to the 401(k) Plan", and for giving the Trustee and the Court notice of any intent to audit the 401(k) Plan. On November 16, 2009 the DOL filed both its Limited Objection # 178 and a Notice of Intent to Audit #179. Although the DOL disputes that it had only until November 16, 2009 in which to notify the Trustee of any intent to audit the 401(k) Plan, it filed its notice of intent to audit and sent the Trustee a request that he provide additional information regarding the 401(k) Plan by October 1, 2009.⁵ Neither the DOL's Objection or its Notice of Intent to Audit provides a time frame for the DOL to complete its audit. Despite the DOL's failure to timely object when the Termination Motion was filed, the DOL's objection states that it reserves the right to investigate the 401(k) Plan and fiduciaries upon receipt of any information that suggests a breach of a fiduciary duty may have occurred either pre or post-petition and do so within the applicable ERISA statute of limitations, which can be as long as six years.

The Court conducted a status conference and gave the parties an extended period in which to file supplemental briefs addressing the Court's authority to enter the Proposed Order.

POSITION OF THE PARTIES

The DOL does not dispute this Court's jurisdiction to authorize the Trustee to terminate the 401(k) Plan or to rule on the fees and expenses incurred in terminating the 401(k) Plan, as that expense is being borne by the bankruptcy estate.⁶ This dispute centers on whether the Court can and should enter so much of the Proposed Order that bars "any and all claims relating to the 401(k) Plan and the termination thereof," and further declares that the Trustee has satisfied all his obligations under 11 U.S.C. § 704(a)(11). In his supplemental brief, the Trustee acknowledges that the Proposed Order could be read to release claims that the plan participants and others have against the prior administrators of the 401(k) Plan, which the brief defines as "those responsible prior to the Trustee's appointment as bankruptcy trustee...." The Trustee has represented that he "has explicitly clarified to the DOL that the scope of the requested relief relates only to the post-petition period and to activities by the Trustee and his properly engaged professionals."⁷ The foregoing language suggests that the Trustee is not seeking to bar claims against the estate resulting from the Debtor's performance as the 401(k) Plan administrator.⁸

The DOL, asserting that the Trustee is a plan fiduciary by virtue of 11 U.S.C. § 704(a)(11), argues in its Limited Objection that this Court cannot enter paragraphs (B) and (C) of the Proposed Order for three reasons. First it argues that this Court lacks jurisdiction under 28 U.S.C. § 1334(a) or (b) to determine whether the Trustee has fulfilled his fiduciary duties under ERISA and to release him from any liability for breach of his fiduciary duties under ERISA. As support for this argument, the DOL relies heavily upon In re AB&C Group, Inc., 411 B.R. 284 (Bankr. N.D.W.Va.2009), in which that court concluded it lacked jurisdiction to enter the requested relief.

Second, the DOL asserts that even if the Court has jurisdiction, the relief requested is not authorized by the Bankruptcy Code and contravenes ERISA in several ways, including shortening the statute of limitations provided for in ERISA § 413, interfering with the DOL's (and others') right to bring a civil enforcement action under ERISA...