In re Victory Apparel Manufacturing Corporation

• Decision Date: 17 July 1957
• Docket Number: No. 506-55.,506-55.
• Citation: 154 F. Supp. 819
• Court: U.S. District Court — District of New Jersey
• Parties: In the Matter of VICTORY APPAREL MANUFACTURING CORPORATION, Bankrupt.

154 F. Supp. 819

In the Matter of VICTORY APPAREL MANUFACTURING CORPORATION, Bankrupt.

No. 506-55.

United States District Court D. New Jersey.

July 17, 1957.

Raff, Sherman & Scheider, Newark, N. J., for trustee, by Louis Sherman, Newark, N. J.

Chester A. Weidenburner, United States Atty., Newark, N. J., for United States, by Jerome D. Schweitzer, Asst. United States Atty., Newark, N. J.

Sidney Reitman, Newark, N. J., for claimant, Jacob Sheinkman, and Henry Mittler, New York City, of counsel.

MODARELLI, District Judge.

There is a petition before the court to review an order of the Referee in Bankruptcy regarding the disallowance of certain claimed wage priorities. On May 1, 1957, Referee William H. Tallyn granted a motion of the Trustee to expunge and disallow the claim of Local 126 of the Amalgamated Clothing Workers of America for contributions to the Amalgamated Cotton Garment and Allied Industries Insurance and Retirement Funds as a priority claim for wages within the meaning of § 64, sub. a(2) of the Bankruptcy Act, 11 U.S.C.A. § 104, sub. a(2). The Trustee and the United States of America, the latter as a creditor of the bankrupt, appeared in support of the Referee's order.

Upon the filing of a petition in bankruptcy by the Victory Apparel Corporation, the appellant-claimant, Local 126 of the Amalgamated Clothing Workers of America, hereinafter referred to as "Local 126," filed a proof of claim amended to the amount of $1,695.84. This sum represents alleged wage priorities due for a 90-day period prior to the filing of the petition. The claim is predicated upon a collective bargaining agreement dated January 3, 1955, signed by the employer-bankrupt and Local 126. Pursuant to this agreement, the employer was required to make payments computed at four and one-half per cent of the gross reportable payroll of the employees in the bargaining unit. These payments were made directly to the Insurance and Welfare Funds. For the three-month period immediately preceding the filing of the bankruptcy petition, the employer failed to pay $1,695.84 to the funds; this is the amount of the claim, as noted above. The fundamental question disposed of by the Referee and now before this court is whether employer contributions to union health and welfare funds, made pursuant to a collective bargaining agreement, are entitled to priority in payment as "wages" pursuant to § 64, sub. a(2) of the Bankruptcy Act.

Perhaps it would be instructive to recite the statutory language which comprises the prerequisites to a valid priority.

"(a) The debts to have priority, in advance of the payment of dividends to creditors, and to be paid in full out of bankrupt estates, and the order of payment, shall be * * * (2) wages and commissions, not to exceed $600 to each claimant, which have been earned within three months before the date of the commencement of the proceeding, due to workmen, servants, clerks, or traveling or city salesmen on salary or commission basis, whole or part time, whether or not selling exclusively for the bankrupt; * * *." Section 64, sub. a(2), 11 U.S.C.A. § 104, sub. a(2).

As noted by the recognized authority in the field of bankruptcy, "wages" for which a prior claim may be made under the statute "are closely circumscribed by express provisions of the Act," and each one of the statutory "qualifications must be satisfied before priority entails." Collier on Bankruptcy (14th ed. 1941), p. 2083.

To determine whether the claim in this case satisfies the statutory definition, it is necessary to analyze the agreement negotiated by the employer and Local 126. The collective bargaining agreements, with supplements, were introduced in evidence at the hearing before the Referee and are before this court.¹ These agreements contain the usual provisions in relation to the hiring of employees, hours of employment, rates of compensation, days to be defined as legal holidays, and vacation pay. Article IX makes reference to and incorporates the supplemental agreements dealing with the insurance and retirement funds. Paragraph Three of the supplement agreement relating to the Cotton Garment Retirement Fund reads as follows:

"3. Commencing on the pay day for the week of January 3, 1955, and weekly thereafter, the Employer shall pay to the Trustees (hereinafter called the `Trustees') designated under an Agreement and Declaration of Trust dated as of May 1, 1950 and as amended as of March 27, 1953, a copy of which Agreement Declaration of Trust has been exhibited to and approved by the Employer and is herein specifically incorporated by reference, sums of money determined as follows:

Two (2%) per cent of the wages payable for the preceding pay period to all the Employees."

The supplemental agreement designated Cotton Garment Insurance Fund contains the same language except that the contribution is calculated as follows:

"Two (2%) of the wages payable for the preceding pay period to all Employees, and commencing on the pay day for the week of January 1, 1954, and weekly thereafter, the aforesaid percentage of payroll shall be increased to three (3%) per cent."

Paragraph Five of the agreements contains the following language:

"5. No Employee or member of his family shall have the option to receive instead of the benefits provided for by the Agreement and Declaration of Trust any part of the contribution of the Employer. No Employee or member of his family shall have the right to assign any benefits to which he may be or become entitled under the Agreement and Declaration of Trust or to receive a cash consideration in lieu of such benefits either upon termination of the trust therein created or through severance of employment or otherwise."

The Referee, in expunging the claim as a priority claim, based his decision on Judge Leibell's ruling in a similar case, Local 140 Security Fund v. Hack, 2 Cir., 1957, 242 F.2d 375 affirming In the Matter of Sleep Products, Inc., Bankrupt, D.C.S.D.N.Y.1956, 141 F.Supp. 463. There the Court of Appeals ruled that the payments created only a debtor-creditor obligation for something other than wages. The court concluded as follows:

"The language of the statute granting priority to wages cannot be stretched so as to embrace this type of claim. If every type of payment made by an employer to a union welfare fund is to be given priority as a claim for `wages' under Section 64, sub. a(2) of the Bankruptcy Act, that should be done through the legislative action of the Congress, and not by any judicial mislabeling of such payments as `wages.'" 242 F. 2d at page 378.

In a concurring opinion, Judge Hincks added that a welfare fund cannot, by any construction, be embraced in the term "workman" to whom wages are due.

The question here discussed has not been decided by our Court of Appeals. On the basis of an independent analysis of the evidence against the background of several years of judicial experience in applying the Bankruptcy Act to specific fact situations, I am impelled to subscribe to the conclusion reached in the Second Circuit Court of Appeals. To summarize my conclusion, the nature of the benefits which accrued to the employees from the funds discloses that the employer's contributions do not constitute "wages" that are "earned" by and "due to" the employees. The employer's contribution is due to independent entities, the Trustees of the respective funds; the obligation of such payment is not a debt owed the individual employee. Indeed, the...