In re Tristar Fire Prot., Inc.

• Decision Date: 08 March 2012
• Docket Number: No. 11–62283.,11–62283.
• Parties: In re TRISTAR FIRE PROTECTION, INC., Debtor.
• Court: U.S. Bankruptcy Court — Eastern District of Michigan

466 B.R. 392
56 Bankr.Ct.Dec. 64

In re TRISTAR FIRE PROTECTION, INC., Debtor.

No. 11–62283.

United States Bankruptcy Court, E.D. Michigan, Southern Division,

March 8, 2012.

[466 B.R. 395]

John J. Stockdale, Jr., Michael E. Baum, Ryan D. Heilman, Bloomfield Hills, MI, for Debtor.

Opinion (1) Denying Motion For Allowance And Payment Of Administrative Expense Claim; And (2) Estimating Administrative Expense Claim For Purposes Of Chapter 11 Confirmation Hearing PHILLIP J. SHEFFERLY, Bankruptcy Judge.Introduction

This is a Chapter 11 case. The Debtor is in the business of providing sprinkler design, installation and repair services for new construction and existing buildings. The Debtor filed a plan of reorganization. A labor union, Sprinkler Fitters' Local 704, filed an objection. Among other things, the objection states that Local 704 holds an administrative expense claim arising out of certain alleged unfair labor practices by the Debtor that occurred after the Debtor filed its Chapter 11 case. Local 704 objects to the Debtor's plan because it does not provide for payment of this administrative expense claim. Local 704 also filed a separate motion for allowance and payment of this administrative expense claim. Because the Debtor does not believe that Local 704 holds an administrative expense claim, the Debtor requests that the Court deny Local 704's motion and overrule its objection to the Debtor's plan. For the reasons explained in this opinion, the Court denies Local 704's motion for allowance and payment of an administrative expense claim. Further, the Court estimates Local 704's administrative expense claim at zero for purposes of considering its objection to the Debtor's plan of reorganization.

[466 B.R. 396]

Jurisdiction

This is a core proceeding under 28 U.S.C. § 157(b)(2)(B) and (L), over which the Court has jurisdiction pursuant to 28 U.S.C. §§ 1334(a) and 157(a).

Procedural History

On August 18, 2011, the Debtor filed this Chapter 11 case. On October 11, 2011, the Debtor filed a combined plan of reorganization and disclosure statement. The Court set a deadline of December 2, 2011 to file objections to the plan and disclosure statement, and scheduled a hearing on confirmation of the plan of reorganization on December 9, 2011.

Several parties timely filed objections to confirmation of the Debtor's plan, including the objection filed by Local 704 (docket entry no. 83). One of the issues raised by Local 704's objection pertains to a provision in the Debtor's plan for an “Administrative Claim Escrow” to fund the payment of administrative expense claims. Local 704 asserts that it holds an administrative expense claim in this case because of alleged unfair labor practices by the Debtor during the Chapter 11 case. According to Local 704, the Debtor's post-petition unfair labor practices entitle Local 704 to an award of back pay and fringe benefit contributions for its members who were employed by the Debtor. Local 704 argues that the Debtor's plan cannot be confirmed unless the plan provides sufficient funds to pay its administrative expense claim. Although the Debtor denies that Local 704 is entitled to an administrative expense claim, the Debtor requested that the Court adjourn the confirmation hearing to permit the Debtor to try to resolve all of the outstanding objections to its plan, including Local 704's objection. The Court granted that request. The Court also ordered the appointment of a mediator for all objections and adjourned the confirmation hearing until January 5, 2012.

At the adjourned confirmation hearing, the Debtor informed the Court that the mediator was successful in resolving a number of outstanding issues for confirmation, but Local 704's objection was still outstanding. In the meanwhile, after the original confirmation hearing but before the adjourned confirmation hearing, Local 704 filed on December 20, 2011 a “Request for Payment of Chapter 11 Administrative Claims” (docket entry no. 97). This “request” alleges that Local 704 holds an administrative expense claim of $545,600.00. The request also states that Local 704 intends to file a “Motion for payment of administrative claim ... at the appropriate time.” This created a problem for the Debtor because one of the requirements for confirmation is that administrative expense claims be paid in full on the effective date of the plan unless the holder of the claim agrees to some other treatment. At the adjourned confirmation hearing, the Debtor continued to deny that Local 704 is entitled to allowance of any administrative expense claim, but also explained that it does not have funds to pay any administrative expense claim that may be allowed for Local 704. Because the Debtor has the burden as the plan proponent to show that all of the elements of § 1129 of the Bankruptcy Code are met with respect to its plan, it became apparent to the Court that Local 704's request for allowance of an administrative expense claim must be resolved before proceeding further with confirmation of the Debtor's plan.

In an effort to expedite resolution of the dispute between Local 704 and the Debtor, the Court determined, with the consent of both parties, to treat Local 704's “Request for Payment of Chapter 11 Administrative Claims” as a motion for allowance and

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payment of an administrative expense claim, rather than require Local 704 to file a separate motion. The Court then fixed a deadline for Local 704 to file a memorandum of law in support of its motion and for the Debtor to file a response to it. The Court scheduled an evidentiary hearing on the motion for February 8, 2012, and adjourned the confirmation hearing until after that date.

Local 704 called one witness at the evidentiary hearing, Greg Herman, its business manager, financial secretary and treasurer. The Debtor called two witnesses. One witness was Scott Penive, the former president of the Debtor. The other witness was Eric Wieber, the chief financial officer of the Debtor. Local 704 and the Debtor stipulated to admit into evidence Local 704's exhibits A through J and the Debtor's exhibits 101 through 137. After Local 704's proofs, the Debtor made an oral motion for judgment in its favor. The Debtor also filed a memorandum of law in support of that motion. The Court took the Debtor's motion under advisement. At the conclusion of the hearing, Local 704 requested an opportunity to reply in writing to the motion. The Court granted that request. All issues with respect to the hearing are now fully briefed. The following are the Court's findings of fact and conclusions of law under Fed. R. Bankr.P. 7052.

Facts

The Debtor has been in the business of providing sprinkler design, installation and material services since 1978. The Debtor's business operates out of a single location in Plymouth, Michigan, but provides services both in and outside of Michigan. Local 704 is a labor union that represents sprinkler fitters and apprentices in southeastern Michigan. On February 1, 2006, Local 704 entered into a collective bargaining agreement (Exhibit A) with the National Fire Sprinklers Association, Inc. (“NFSA”). The NFSA is a multi-employer association that represents contractors in this industry. At the time that Local 704 and the NFSA entered into the collective bargaining agreement, the Debtor was a member of the NFSA and, therefore, was bound to the agreement. The agreement had a term of five years, which would expire on July 31, 2011.

On February 10, 2011, Penive, the president of the Debtor at that time, wrote to Local 704 (Exhibit 102) to inform it that the Debtor was withdrawing from the NFSA for purposes of multi-employer collective bargaining and that the Debtor desired to negotiate its own individual collective bargaining agreement with Local 704. Approximately one week after sending this letter, Penive contacted Robert Rutan, the financial secretary of Local 704 at that time, to start a dialogue for setting up negotiations for a new collective bargaining agreement after the current one expired on July 31, 2011. Penive informed Rutan that the Debtor was looking for relief from the current wage and benefit package for its sprinkler fitters. At that time, the total wage and fringe benefit package in effect was $61.92 per hour. Rutan explained to Penive that he understood that the Debtor had withdrawn from the NFSA and that it would like to negotiate directly with Local 704, but also stated that he did not know when Local 704 would be able to negotiate with the Debtor because it was very busy working on a new multi-employer agreement with the NFSA. Rutan also told Penive that no matter what else was negotiated, the Debtor's deal was not going to be any better than the deal NFSA was going to get under its new agreement because of the “favored nations” clause in the NFSA's multi-employer

[466 B.R. 398]

agreement.¹ After that conversation, there were a couple more conversations during spring 2011, but Local 704 continued to indicate that it did not have the time to negotiate with the Debtor because it was too busy with the NFSA negotiations. There were no further communications between the Debtor and Local 704 before the existing collective bargaining agreement expired on July 31, 2011.

When the agreement expired, Local 704 went on strike, both against the contractors represented by the NFSA and those not represented by the NFSA, including the Debtor. At that time, Local 704 represented 19 sprinkler fitters employed by the Debtor, all of whom went on strike.

On August 2, 2011, Rutan sent by facsimile (Exhibit 103) a proposed interim agreement to all contractors not represented by the NFSA, including the Debtor. Local 704 offered in the interim agreement to return to work pending a final agreement between Local 704 and the NFSA, upon the same terms as existed in the expired collective bargaining agreement, plus a $2.00 per hour increase in wages. The Debtor notified Local 704 that it...