In re The ROBERT PLAN CORPORATION ., 8-08-74573-reg.

• Decision Date: 26 October 2010
• Docket Number: No. 8-08-74573-reg.,8-08-74573-reg.
• Citation: 439 B.R. 29
• Parties: In re The ROBERT PLAN CORPORATION, et al, Debtors.
• Court: U.S. Bankruptcy Court — Eastern District of New York

439 B.R. 29

In re The ROBERT PLAN CORPORATION, et al, Debtors.

No. 8-08-74573-reg.

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

Oct. 26, 2010.

COPYRIGHT MATERIAL OMITTED.

COPYRIGHT MATERIAL OMITTED.

Harold S. Berzow, Ruskin Moscou Faltischek, Uniondale, NY, for Debtors.

Fletcher Strong, Steven B. Sheinwald, Kirschenbaum & Kirschenbaum, PC, Garden City, NY, for Trustee.

S. Jason Teele, Sharon L. Levine, Lowenstein Sandler PC, Roseland, NJ, for CreditorCommittee.

Memorandum Decision

ROBERT E. GROSSMAN, Bankruptcy Judge.

The matter is before the Court pursuant to an application by Kenneth Kirschenbaum, Esq.(the “Trustee” or “Administrator”), the Chapter 7trustee for the consolidated estates of The Robert Plan Corporation(“RPC”) and The Robert Plan of New York Corporation(“RPNY”)(collectively, the “Debtors”).The Trustee filed motions seeking authorization to (1) act as administrator of RPC's pension plan and RPC's Retirement Savings Plan (the “Plan”), (2) retain the Trustee and certain professionals to assist the Trustee in carrying out his duties as Administrator, (3) pay specified expenses related to the administration of the Plan and (4) take any actions the Trustee deems appropriate to bring the Plan into compliance with the ERISAstatutes and to terminate the Plan.The U.S. Department of Labor(“DOL”) has submitted no objection to the Trustee's request to act as Administrator and terminate the Plan, but does object to the remainder of the relief requested by the Trustee.According to DOL, the Bankruptcy Court lacks jurisdiction to rule on the relief requested in the motions because the motions are not core proceedings, nor are they sufficiently related to the Debtors' cases.DOL asserts that because the Plan is not property of the Debtors' estates, and because it is likely that there are sufficient funds in the Plan to cover the costs of administering the Plan, there is no basis for the Bankruptcy Court to assert jurisdiction over the Trustee as Administrator.

For the reasons set forth below, the Court finds that it has jurisdiction over the Trustee while he performs his obligations as Administrator.Because the Trustee is fulfilling his duties imposed by the Bankruptcy Code pursuant to 11 U.S.C. § 704(a)(11), the Trustee is subject to this Court's core jurisdiction while performing these duties.The Trustee also must comply with the requirements imposed by the Bankruptcy Code when the Trustee acts as Administrator pursuant to 11 U.S.C. § 704(a)(11).These requirements include seeking Court authorization to retain and authorize the payment of the Trustee's professionals.This Court has jurisdiction to authorize these requests as they constitute core matters arising in the Debtors' bankruptcy cases.The fact that the Trustee may seek payment of an award of this Court from non-estate assets does not limit or alter the Court's jurisdiction to make such an award.However, because the Trustee's request for entry of an order awarding fees for the retained professionals does not comply with the applicable Bankruptcy Rules and the E.D.N.Y. Local Bankruptcy Rules, the request is denied without prejudice.The Trustee's request for entry of an order authorizing the Trustee to seek compensation for his services as Administrator an hourly rate of $500.00, to pay expenses in connection with the performance of his duties in capacity as Administrator and to take any actions the Trustee deems appropriate to bring the Plan into compliance with the ERISAstatutes is denied.The Bankruptcy Court's jurisdiction is limited to cases or controversies pursuant to the U.S. Constitution, Art. III, § 2.At this point, there is no case or controversy at issue between the Trustee and the DOL, or any other party, with respect to any actions the Trustee may take in the future as Administrator.The Trustee's requests to approve his proposed hourly rate as Administrator and to authorize the Trustee to pay himself a specific sum as the Administrator are denied without prejudice.

Procedural History

On August 25, 2008(the “Petition Date”), the Debtors filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code(the “Code”).On January 19, 2010, the cases were converted to Chapter 7.The Trustee was duly appointed and qualified as acting trustee for both cases.By order entered on September 9, 2010, the Debtors' cases were substantively consolidated.

On May 6, 2010 and June 10, 2010, the Trustee filed applications for orders authorizing the Trustee to act as Administrator and authorizing the Trustee to employ certain professionals.On August 6, 2010, the Trustee filed a supplemental affirmation in support of these prior applications.A hearing was held on August 16, 2010, and both the Trustee and the Office of the United States Trustee appeared.Thereafter, on September 1, 2010, DOL filed objections to the Trustee's applications (“DOL Objection”), and on September 3, 2010, the Trustee filed a reply.On September 17, 2010, the Trustee filed an exhibit consisting of an article from the Fall 2010 Journal of the National Association of Bankruptcy Trustees entitled “Terminating an ERISA Retirement Plan in Bankruptcy: Can a Bankruptcy Trustee Serve Two Masters?”On September 29, 2010, the Court entertained further oral argument, and on October13, 2010 DOL and the Trustee filed additional briefs.Thereafter, the matter was marked submitted.

Facts

The Plan is sponsored by RPC for the benefit of its employees and is a defined contribution plan governed by the terms of ERISA.Prior to the Petition Date, RPC was the Plan administrator.¹Upon conversion of the Debtors' cases and appointment of the Trustee, the Trustee was required under § 704(a)(11) of the Code, ² as amended by the Bankruptcy Abuse and Consumer Protection Act of 2005, to continue to perform the obligations required of the plan administrator, as defined in the Employee Retirement Income Security Act of 1974(“ERISA”).Pursuant to Section 18.12 of the Plan, titled “Governing Law,” the Plan “and the accompanying Adoption Agreement shall be construed, administered and enforced according to ERISA, and to the extent not preempted thereby, the laws of the Commonwealth of Massachusetts.”³There is no dispute that the Plan assets are excluded from the Debtors' estate pursuant to Bankruptcy Code § 541(b)(7).

The Trustee states that in his capacity as Administrator, he will terminate the Plan and distribute the funds to the Plan participants.As Administrator the Trustee must also determine whether the Plan has been properly administered by Plan fiduciaries and whether legal action is warranted against any party or person for violation of the Plan provisions or ERISA laws.The Trustee as Administrator must also determine if any amendments to the Plan are necessary and if any expenditures or allocations are necessary.The Trustee anticipates he will incur significant expenses in meeting his obligations as Administrator including locating Plan participants and obtaining their cooperation in the termination and liquidation process.

By application dated May 6, 2010, the Trustee sought authorization to act as Administrator at an hourly rate of $500.00, and sought authorization to retain the services of David J. Witz as pension consultant, Kirschenbaum & Kirschenbaum, P.C. as legal counsel, and Travis Whitfield, CPA as independent auditor (“First Application”).In the First Application, the Trustee was not seeking compensation of any of these professionals, but indicated that any compensation would be conditioned upon further application and approval by the Court.

According to the representations made by the Trustee in the First Application, as of May 6, 2010, there were approximately 275 participants and eight million dollars ($8,000,000.00) invested in the Plan fund.There was also $130,000.00 in an account known as a forfeiture fund (the “Forfeiture Fund”), which is comprised of employer contributions to employees who left employment before the retirement benefits vested.Pursuant to Sections 19.05⁴and20.14⁵ of the Plan documents and Sections 1103(c)(1),⁶1104(a)(1)(A)(ii), ⁷and1108(c) of ERISA, payments for the Trustee and retained professionals are to be made from the Plan assets.There is no requirement under ERISA that the Administrator obtain an order prior to paying for the costs of administering the Plan.Because the Trustee believed the Plan was fully funded, the Trustee initially asserted that he would seek payment only from the Plan assets, specifically, the Forfeiture Fund.However, to the extent that the amount in the Forfeiture Fund would be insufficient to satisfy the Trustee's expenses and compensation, the Trustee contemplated deducting money from each participant's account who did not respond to the initial notice of termination.The Trustee further indicated that any funds remaining in the Forfeiture Fund after all expenses were paid would be distributed to the Plan participants or possibly to the Debtors' estates.The Trustee did not initially contemplate seeking payment from the Debtors' estate and represented that any payment he sought for himself or the retained professionals would be limited to Plan assets.

By supplemental application filed on June 10, 2010, the Trustee sought authorization to pay the above-named pension plan experts and consultants up to certain specified limits subject to his discretion from the Plan funds (“Second Application”).On August 6, 2010, the Trustee filed a supplemental affirmation in support of the Second Application, wherein the Trustee sought authorization to take whatever action the Trustee deems appropriate to bring the Plan into compliance and to terminate the Plan (“Second Amended Application”).According to the Trustee, the Trustee's professionals have determined that the Plan was not in compliance with ERISA and that almost 100 additional participants had to...