In re Radcliffe

• Decision Date: 08 July 2008
• Docket Number: No. 05-67516.,No. 2:07-CV-285 PS.,05-67516.,2:07-CV-285 PS.
• Citation: 390 B.R. 881
• Parties: In re Barry G. RADCLIFFE, Debtor. Barry G. Radcliffe, Appellee, v. International Painters and Allied Trades Industry Pension Fund, Appellant.
• Court: U.S. District Court — Northern District of Indiana

390 B.R. 881

In re Barry G. RADCLIFFE, Debtor.

Barry G. Radcliffe, Appellee, v. International Painters and Allied Trades Industry Pension Fund, Appellant.

No. 05-67516.

No. 2:07-CV-285 PS.

United States District Court, N.D. Indiana, Hammond Division.

July 8, 2008.

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David M. Blaskovich, R. Brian Woodward, Casale Woodward & Buls LLP, Merrillville, IN, for Debtor.

Frederick W. Dennerline, III, Fillenwarth Dennerline Groth & Towe, Indianapolis, IN, Kent Cprek, Philadelphia, PA, for Appellant.

MEMORANDUM OPINION AND ORDER

PHILIP P. SIMON, Bankruptcy Judge.

Appellee Barry G. Radcliffe owned and operated Glass Service, Inc. As part of a labor agreement, Glass Service contributed to a union pension fund. When the company became delinquent on its contributions in early 2004, Radcliffe signed a personal guarantee to pay Glass Service's contributions should the company default again. Glass Service did default again, but Radcliffe turned out to be a four flusher; he didn't stand behind his personal guaranty and so he stiffed the fund.

The Appellant, International Painters and Allied Trades Industry Pension Fund, sued Radcliffe for breach of contract and ultimately received a default judgment against him. Radcliffe promptly declared bankruptcy. But just before doing so, he completed a request for his own pension benefits from International. International agreed to pay Radcliffe's benefits, but informed him that it would first withhold payment and apply the amounts withheld to the substantial debt Radcliffe owed International by virtue of defaulting on the contributions. Radcliffe's counsel responded that doing so would violate the automatic stay that took effect upon Radcliffe's filing for bankruptcy. International engaged in a little self help and withheld payment nonetheless. But it did nothing to clear its actions with the Bankruptcy Court. Radcliffe filed a complaint to enforce the automatic stay and the Bankruptcy Court ruled in his favor, ordering International to pay compensatory damages, interest, punitive damages, and attorneys fees. International now appeals. The bankruptcy judge did not abuse his discretion and so his decision is AFFIRMED.

BACKGROUND

Radcliffe owned Glass Service, Inc., which was party to a collective bargaining agreement with International. As part of that agreement, Glass Service was to make contributions to International, a multiemployer employee benefit pension plan. In early 2004, Glass Service became delinquent on its contributions. In May 2004, Radcliffe executed an installment promissory note as well as a personal guarantee committing to personally fulfill Glass Service's contribution obligations should it default. The guarantee obliged Radcliffe to "pay all contributions, delinquencies and amounts specified in the [union contract], that [Glass Service] owes to [International]" should Glass Service become delinquent again. (DE 1-7 at 6 (quotation marks omitted).)¹ Under the guarantee, if Radcliffe failed to fulfill his obligations he would be "liable under the same terms, and to the same extent," as Glass Service for both "contractual and statutory liabilities." (Id. at 6.)

Glass Service apparently did default because on December 2004 International sued it and Radcliffe in federal court in Washington, D.C. In April of the following year, the D.C. court entered a default judgment in favor of International against the defendants. The "clear basis" of Radcliffe's liability to International was his failure to fulfill the personal guarantee—it was not an assertion of a breach of fiduciary duty by Radcliffe. (Id.) There is nothing in the complaint or judgment that even remotely references a breach of fiduciary duty. Rather, it was simply a contract action based on the personal guarantee. (Id. at 6-7.)

One month after the default judgment, Glass Service closed its doors permanently. Thereafter, Radcliffe completed the paperwork to receive his own pension benefits from International. He first submitted an application for benefits in September. He then completed additional forms on October 6 and returned them to International on October 13. The very same day Radcliffe returned the forms to International —October 13, 2005—he also filed a Chapter 7 bankruptcy petition. As part of his petition, Radcliffe listed International as a creditor with claims in the amount of $107,500.00.

On November 2, 2005, International sent Radcliffe a letter regarding his pension benefits. It informed Radcliffe that his application for benefits had been approved and that he was entitled to a monthly payment of $2,473.00, but that he would not be receiving payments until the $74,946.47 debt he owed International from the default judgment had been paid. Instead, International advised Radcliffe that it would be withholding his pension benefits and applying the amount of each payment to the debt he owed International. International expressly and unilaterally rejected the notion that using Radcliffe's pension benefits to offset his debt was barred by the automatic stay. Here's what International told Radcliffe in its letter to him:

As you have an outstanding personal debt to the Pension Fund, your monthly pension benefits will be offset against your debt to the Pension Fund until such time as the judgment has been satisfied or you reach the age of 65. The offset of debts due International is allowed by Section 7.30(c) of the Pension Plan document and applicable case law. See, e.g., Coar v. Kazimir, 990 F.2d 1413 (3d Cir.1993). As the debt exceeds the amount of your monthly benefit, you will not receive any actual payment. However, as the money is being applied directly for your benefit to reduce your indebtedness, the Pension Fund will report the pension payments that are offset to pay the judgment and the payments will be treated by the IRS as a pension benefit paid to you.

This is an initial determination by the Pension Plan concerning an offset of amounts you owe the Pension Plan and Annuity Plan against benefits due you. If you or any interested party disagree with this determination you or any interested party may file an appeal to the Trustees. . . . The appeal must be filed within 60 days of the date of this letter and should set forth reasons why you contend the Plans [sic] determinations are not permissible, including any documentation substantiating your claim. . . . This decision will become final and binding in the absence of a timely appeal.

We have received notice that you filed a Chapter 7 bankruptcy petition on October 13, 2005. We believe that pension assets are not property of the bankruptcy estate under the bankruptcy law. As a result, the offset of your pension benefits should not be affected by the bankruptcy. If you or your bankruptcy counsel believes otherwise, let us know and we will re-examine this issue.

(See DE 1-9 at 7-8 (emphasis in original).)

Radcliffe's counsel responded to International's letter a little more than a week later. (Id. at 10.) In her letter, Radcliffe's counsel objected to International's proposed setoff, noting that she "fail[ed] to understand how [International is] entitled to collect on a pre-petition debt in violation of the automatic stay that is now in effect." (Id.) She then explained that Radcliffe would file a complaint if International did not provide an adequate legal basis for its action.

International ignored them; it didn't respond to the letter nor did it seek relief from the automatic stay. Instead, it waited and forced Radcliffe to file an adversary complaint, which he did on December 7. (DE 1-7 at 9.) Although International requested relief from the stay in its answer to the complaint, (DE 1-10 at 3-4), it waited until May 31, 2006 to file a motion for relief, (DE 1-24).

The Bankruptcy Court entered its initial order in the adversary proceeding on March 14, 2007. (DE 1-16.)² It then reconsidered the order, and entered a new one on July 19, which constituted its findings of fact and conclusions of law under Federal Rule of Bankruptcy Procedure 7052 and Federal Rule of Civil Procedure 52(a). (DE 1-7 at 2.) The Bankruptcy Court consolidated the issues raised in the adversary proceeding and the motion for relief from the stay and disposed of both in the July 19 order, which the Court expressly noted were "core proceedings" under 28 U.S.C. § 157(b)(2)(G) and (O). (Id. at 2.)

The Bankruptcy Court narrowed the issues presented to two: first, whether International violated the automatic stay by not paying Radcliffe his pension benefits; and second, if it did, should the automatic stay be retroactively annulled or modified to allow International to set off Radcliffe's debts it. (Id. at 11.)³ The Court concluded that International's actions did violate the automatic stay, and that the stay should not be annulled. The Bankruptcy Court's analysis of both questions involved a deeper question regarding International's right to carry out a setoff under ERISA. (See id. at 14.) The Bankruptcy Court ultimately determined that International could not offset Radcliffe's debt with his monthly pension benefits because that would violate ERISA's anti-alienation provision. (See id. at 14-21.) Thus, the Court held that International had indeed violated the automatic stay and that it was not entitled to relief. The Court also determined that the violation was willful and awarded both compensatory and punitive damages.

International now appeals wide swaths of the Bankruptcy Court's decision. It argues that Radcliffe lacks standing to enforce the automatic stay. It also asserts that the setoff is valid under ERISA, and even if it is not, International's conduct did not amount to a willful violation of the automatic stay. In addition, International also contests both the Bankruptcy Court's calculation of damages as well as its award of punitive damages.

The parties stipulated to the Bankruptcy Court's...