In re Oneida Ltd.

• Decision Date: 27 February 2008
• Docket Number: Adversary No. 06-01920 (ALG).,Bankruptcy No. 06-10489 (ALG).
• Parties: In re ONEIDA LTD., Reorganized Debtor. Oneida Ltd., Plaintiff, v. Pension Benefit Guaranty Corporation, Defendant.
• Court: U.S. Bankruptcy Court — Southern District of New York

383 B.R. 29

In re ONEIDA LTD., Reorganized Debtor Oneida Ltd., Plaintiff, v. Pension Benefit Guaranty Corporation, Defendant.

Bankruptcy No. 06-10489 (ALG).

Adversary No. 06-01920 (ALG).

United States Bankruptcy Court, S.D. New York.

February 27, 2008.

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Shearman & Sterling LLP, by William J.F. Roll, III, Douglas P. Bartner, Lynette C. Kelly, Michael H. Torkin, New York, NY, for Plaintiff.

Pension Benefit Guaranty Corp., by Israel Goldowitz, Karen L. Morris, James L. Eggeman, Paula J. Connelly, Lawrence F, Landgraff, Erika E. Barnes, Washington, D.C., for Office of the Chief Counsel.

Steptoe & Johnson LLP, by Greg Yates, Charles G. Cole, New York, NY, for Defendant.

MEMORANDUM OF OPINION

ALLAN L. GROPPER, Bankruptcy Judge.

On February 8, 2006, the President signed the Deficit Reduction Act of 2005 ("DRA"), an appropriations bill designed to reduce the deficit in connection with the 2006 fiscal-year budget. One section of this legislation (the "DRA Amendment") amended the Employee Retirement Income Security Act of 1974 ("ERISA") to create an additional premium for pension plans terminated as part of an in- or out-of-court restructuring. The premium ("DRA Premium") was payable to the Pension Benefit Guaranty Corporation ("PBGC"), a private governmental corporation that was established to collect premiums from pension plan sponsors and to insure certain plan payments.

Oneida Ltd. ("Oneida" or "Debtor") and several affiliates filed petitions under Chapter 11 of the Bankruptcy Code on March 19, 2006, a few weeks after passage of the DRA. Having confirmed a Plan of Reorganization on August 30, 2006 (the "Plan"), Oneida commenced this declaratory judgment action, seeking a finding that the DRA Premiums are prepetition "claims" discharged by the Plan. The PBGC argues that DRA Premiums are not "claims" in the Chapter 11 case and were not discharged; alternatively, it contends that the Debtor is estopped from refusing to pay the DRA Premiums in full. For the reasons set forth below, the Court finds that the DRA Premiums are prepetition "claims" that were discharged in the Plan and that there is no occasion to apply the doctrine of estoppel against the Debtor.

BACKGROUND

Oneida was formed in 1880 in Oneida, New York and became a leading designer and manufacturer of flatware. Facing challenges from overseas manufacturers, Oneida transitioned its operations from manufacturing and became wholly outsourced, with a focus on design and distribution. In 2004, it completed an out-of-court restructuring. Its senior lenders agreed to exchange their secured debt for 62% of Oneida's common stock and entered into a new credit agreement, which provided for approximately $235 million in new loans secured by first priority liens on nearly all of Oneida's assets. (Second Amended Disclosure Statement ("Disc. St."), ECF# 245, p. 15.)¹ In the Debtor's view, however, the 2004 restructuring "did not appropriately recapitalize the. Company." (Disc. St., p. 18.) On March 19, 2006, Oneida and several subsidiaries filed bankruptcy petitions, along with a proposed disclosure statement and pre-negotiated plan of reorganization.

The Debtor's proposed plan and disclosure statement were based on the premise that Oneida was insolvent and that application of the bankruptcy priorities would leave no value for its unsecured creditors or for its old equity. However, at the time of the Ming, it appeared that Oneida had virtually no unsecured debt other than a substantial potential obligation to the PBGC. It had also come, to an agreement with the PBGC relating to its pension obligations and the secured and unsecured liabilities resulting from the underfunding of its three tax-qualified single-employer defined-benefit pension plans — the Oneida Plan, the Buffalo China Salaried Plan, and the Buffalo China Union Plan. These plans were underfunded by about $40 million, triggering minimum contributions to fund the deficiency. There was never a dispute that, in Oneida's words, "unless the Oneida Pension Plans [were] terminated, those minimum contribution obligations would subsume all or virtually all of the Debtors' projected cash flow ..." (Disc. St., p. 21.) Accordingly, Oneida and the PBGC had negotiated over the pension obligations and in an agreement that the parties never disavowed, Oneida had agreed to provide the PBGC with a promissory note in the principal amount of $3 million for the PBGC's secured claim; this "note also covered "any unsecured claim it would have arising out of the distress termination of certain of the Debtors' pension plans." In re Oneida, Ltd., 351 B.R. 79, 82 (Bankr. S.D.N.Y.2006).²

The Debtor's agreement to provide the PBGC with a $3 million note was premised on termination of all three pension plans. On the petition date, Oneida filed a motion for an order finding that it had satisfied the financial requirements for distress termination of these plans, as set forth in 29 U.S.C. § 1341(c)(2)(B)(ii)(IV), and approving termination of the plans. After further negotiations between the Debtor and the PBGC, on April 27, 2006, the application was withdrawn for the Buffalo China Salaried and Union Plans. These plans were not terminated, although the Debtors reserved the right to move to do so in the future. On May 2, 2006, the Court entered an order granting the Debtor's uncontested motion to terminate the Oneida Plan.

The PBGC and Oneida thereafter reached an agreement, dated May 3, 2006, containing the specifics of the PBGC's claims arising from termination of the Oneida pension plan, in effect finalizing their prepetition agreement, and the Debtor filed a motion under Bankruptcy Rule 9019 for court approval thereof. The settlement agreement continued to provide the PBGC with a $3 million note. It was also agreed that "nothing contained [in the Settlement Agreement] or in the Plan of Reorganization will be deemed to: (i) prejudice, preclude or otherwise affect any rights or obligations any of the Parties may have in connection with any premiums arising under Section 8101 of the Deficit Reduction Act of 2005." (Settlement Agreement, ECF# 211, Exh. A.) The Settlement Agreement was never formally approved because of the objection of an Equity Committee that had appeared in the case and objected to that part of the settlement that recited that the PBGC had a $56,236,900 unsecured claim. (Objection of Equity Comm., ECF# 300.) The Equity Committee, claiming there was value for equity, argued that it was unfairly shut out and that an unreasonably high unsecured claim allocated to the PBGC would prejudice its position.

There were continuing disputes as to the amount of the PBGC claim.³ Eventually, all parties stipulated that the claim was at least $21,075,050. (ECF# 342.) In any event, after a contested confirmation hearing in late July 2006, the Court found that there was no value for equity, that the Plan satisfied the absolute priority provisions of the Bankruptcy Code and that it could be "crammed down" against the equity.⁴ Oneida, 351 B.R. at 94. The plan was confirmed by order dated August 30, 2006 and became effective on September 15, 2006.

After confirmation, the Debtor and the PBGC entered into another stipulation, approved by the Court following a hearing on October 26, 2006, relating to claims arising from termination of the Oneida Pension Plan. The order (ECF# 443) had a specific provision relating to the PBGC's claims under the Deficit Reduction Act of 2005, stating:

¶ 5. Nothing contained in this Stipulation, the Disclosure Statement (or any supplements thereto), the Plan of Reorganization (or any supplements thereto), and the Confirmation Order, shall prejudice, preclude or otherwise affect any rights, obligations or arguments Oneida or the PBGC may have to challenge or enforce the validity of the DRA Provision, including, without limitation, the requirement to pay the DRA Premiums.

Shortly after the Court entered the October 26th order, the Debtor commenced this declaratory action, seeking a finding that the DRA Premiums are prepetition claims that were satisfied, along with all other PBGC claims, by the $3 million note and were otherwise discharged in Oneida's Plan. The PBGC contended that the DRA Premiums were not "claims" and accordingly were not discharged at confirmation. The parties nevertheless agreed that the DRA premiums would be paid into an escrow account while the issue was litigated. The PBGC also moved in the District Court to withdraw the reference, on the premise (i) that this case required "consideration of both title 11 and other laws of the United States regulating organizations or activities affecting interstate commerce" (mandatory withdrawal) or, alternatively, (ii) on the basis of discretionary withdrawal of the reference. See 28 U.S.C. § 157(d). In a decision dated July 18, 2007, the District Court declined to withdraw the reference, finding that to resolve the dispute, "the Bankruptcy Court will be required to do what it does on a routine basis: determine whether the DRA Premiums are post-petition obligations that must be paid by Oneida upon reorganization, or pre-petition `claims' that may be discharged pursuant to the Plan of Reorganization." Oneida Ltd. v. Pension Ben. Guar. Corp., 372 B.R. 107, 111 (S.D.N.Y. 2007). It is to this determination that the Court now turns.

DISCUSSION

Both parties have moved for summary judgment. In accordance with Bankruptcy Rule 7056, which incorporates Fed. R.Civ.P. 56, summary judgment may be granted "if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); see Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Morenz v. Wilson-Coker, 415 F.3d 230, 234...