In re Ohio Corrugating Co., Bankruptcy No. B85-00900-Y.
| Decision Date | 12 April 1990 |
| Docket Number | Bankruptcy No. B85-00900-Y. |
| Citation | 115 BR 572 |
| Parties | In re the OHIO CORRUGATING COMPANY, Debtor. |
| Court | U.S. Bankruptcy Court — Northern District of Ohio |
Mary Beth Houser, Youngstown, Ohio, for debtor.
Mark Schlachet, Cleveland, Ohio, for Official Creditors Committee.
Mark A. Rock, and David M. Fusco, Cleveland, Ohio, for United Steelworkers of America, AFL-CIO, CLC.
Steven A. Weiss, Office of the General Counsel, Washington, D.C., for Pension Benefit Guaranty Corporation.
The matter before the Court is the Debtor's Objection to the claim of The United Steelworkers of America, AFL-CIO, CLC ("the Union"). For the reasons set forth below, the Union's claim is determined to be limited by the statutory amounts set forth in 11 U.S.C. §§ 507(a)(3) and (a)(4), and no portion of the Union's claim is found to be an administrative expense under 11 U.S.C. § 503.
The Debtor, a manufacturer of steel barrels for the chemical and agricultural industries, filed its Petition for relief under 11 U.S.C. Chapter 11 on September 30, 1985. It soon became apparent that reorganization was not possible and the Debtor discontinued operations at its Warren, Ohio, plant on October 4, 1985. No business was transacted by the Debtor after December, 1985, and subsequently, the assets of the Debtor were liquidated.
The Debtor was a party to a collective bargaining agreement with the Union. The Debtor has not rejected the collective bargaining agreement pursuant to the procedures set forth in 11 U.S.C. § 1113. On January 29, 1986, the Union filed a class Proof of Claim in the amount of Six Hundred Sixty-Seven Thousand Six Hundred Fifty-Eight and 44/100 Dollars ($667,658.44) for wages, severance pay, vacation pay and medical and dental costs it claims are due under the collective bargaining agreement.1 On October 12, 1989, the Debtor filed an objection to the Union's claim, asserting that no portion of the Union's claim is entitled to payment as an administrative expense, that wages (including vacation and severance pay) are limited to Two Thousand Dollars ($2,000.00) per individual under 11 U.S.C. § 507(a)(3), and that the Union should file an accounting detailing the amounts claimed under §§ 507(a)(3) and (a)(4). In one of the memoranda it filed on this issue, the Union stated that the correct amount of its claim is Three Hundred Three Thousand One Hundred Twenty-Six and 85/100 Dollars ($303,126.85) which is broken down as follows:
Severance Pay $154,513.12
Post-Petition Wages (for
09/30/85—the day of the
filing of the Petition) 944.16
Pre-Petition Wages 40,481.37
1985 Vacation Pay 19,546.70
1986 Vacation Pay 78,411.55
Medical and Dental Claims 9,229.95
___________
TOTAL $303,126.85
The Union contends that this Court should authorize the payment of the entire amount under 11 U.S.C. § 1113(f); however, should this Court hold otherwise the Union states that it will submit a breakdown of the claims that are entitled to priority pursuant to 11 U.S.C. §§ 507(a)(1), (3) and (4).
The primary issue in this dispute is rather simply stated but not so simply resolved. That issue is whether in a Chapter 11 proceeding where the debtor-in-possession is liquidating, 11 U.S.C. § 1113(f) gives claims under an unrejected collective bargaining agreement a priority separate from and above those priorities already enumerated in 11 U.S.C. § 507. The Union claims that § 1113(f) does indeed create the quintessential first priority to be paid even before the administrative expenses allowed under 11 U.S.C. § 507(a)(1). The Debtor asserts that the application of § 1113(f) in such a manner only to a liquidating Chapter 11 debtor would abrogate the statutory distribution priorities established in § 507.
As the Sixth Circuit Court of Appeals noted in In re Unimet Corp. (United Steelworkers of America v. Unimet Corp.), 842 F.2d 879 (6th Cir.1988), "a discussion of 11 U.S.C. § 1113 is not complete without consideration of the circumstances precipitating its enactment." The Sixth Circuit's summary of those circumstances is worthy of repeating here:
Here, the Union relies heavily on language in Unimet to support its position. In the Unimet case, a Chapter 11 debtor-in-possession filed an application to pay insurance premiums for retiree benefits pursuant to a collective bargaining agreement as an administrative expense. The DIP then, in effect, argued against its own motion by claiming that the payment of the retiree insurance premiums could not be characterized as an administrative expense. The Sixth Circuit held that Section 1113 encompasses retiree benefits, and, therefore, it was not necessary for the premiums to qualify as an administrative expense because they were payable under § 1113.
Our conclusion that 11 U.S.C. § 1113 encompasses retiree benefits leads to the conclusion that qualification as an administrative expense is not necessary for the union to prevail. As discussed above, section 1113 unequivocally prohibits the employer from unilaterally modifying any provision of the collective bargaining agreement. Accordingly, we hold that Unimet cannot escape its obligations in this regard merely because of the requirements of section 503 arguably have not been satisfied.
Unimet, 842 F.2d at 884. (emphasis in original; footnote omitted).
The Union argues that the Sixth Circuit's finding mandates the payment of its claim immediately, irrespective of its qualification as an administrative or other priority. The Debtor-in-Possession in the present case urges us to find that the Unimet decision was limited to the facts found in that case. We must agree with the Debtor. We give much deference to the findings of the Sixth Circuit in the Unimet case, and we note that the broad language quoted above does indeed appear to be persuasive authority for the Union's position. Nonetheless, the Union is asking us to find that the effect of § 1113, as applied by the Unimet decision, is to give the Union a super-priority outside of § 507. This result would be a radical departure from the scheme of the Bankruptcy Code and the issue of whether Congress intended such a result was not before the Court in Unimet. A primary issue in that case was whether § 1113 applied to retiree benefits,2 and the Sixth Circuit inquired into this section's legislative history with respect to that issue alone. Because the Unimet case involved neither a liquidating Chapter 11 nor the pervasive question of a super-priority, this Court believes that the general language contained in the Unimet decision is not dispositive of the case at bar.
The Union also relies on Matter of Canton Castings, Inc., 103 B.R. 874 (Bankr.N. D.Ohio 1989), in support of its argument. As Chief Judge Williams stated, the issue in that case was "may the Debtor pay vacation benefits to hourly employees covered by a valid and subsisting collective bargaining agreement, which benefits were accrued prior to bankruptcy but are as yet unpaid?" Canton Castings, 103 B.R. at 875. Relying on Unimet, the Court determined that the debtor-in-possession was obligated to pay such benefits: Canton Castings, 103 B.R. at 876.
The Debtor in the present case urges us to distinguish Canton Castings based on its factual differences from the case at bar. Again, we must agree because to apply the general conclusions of Unimet and Canton Castings to a case involving a liquidating Chapter 11 debtor would, as noted above, create a super-priority, an issue not considered by either Chief Judge Williams or the Sixth Circuit. Indeed, that the debtor-in-possession in Canton Castings was operating an...
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