In re White Motor Corp.

• Decision Date: 14 August 1984
• Docket Number: Misc. No. 84-53.
• Citation: 42 BR 693
• Parties: In re WHITE MOTOR CORPORATION, Debtor.
• Court: U.S. District Court — Northern District of Ohio

42 B.R. 693 (1984)

In re WHITE MOTOR CORPORATION, Debtor.

Misc. No. 84-53.

United States District Court, N.D. Ohio, E.D.

August 14, 1984.

Henry Rose, Baruch A. Fellner, J. Stephen Caflisch, Lawrence F. Landgraff, Deborah West, Washington, D.C., for Pension Benefit Guaranty Corp.

Irwin M. Feldman, David C. Weiner, Armond D. Budish, Hahn, Loeser, Freedheim, Dean & Wellman, David G. Heiman, Jones, Day, Reavis & Pogue, James H. Woodring, Timothy Sheeran, George Crisci, Squire, Sanders & Dempsey, Cleveland, Ohio, for John T. Grigsby, Jr., Trustee.

MEMORANDUM AND ORDER

ANN ALDRICH, District Judge.

This episode in the Chapter 11 reorganization of the White Motor Corporation ("White") raises difficult questions about the jurisdictional boundaries between this Court and the Bankruptcy Court under newly-enacted bankruptcy legislation. The Pension Benefit Guaranty Corporation ("PBGC"), a federal government entity which holds several of the largest claims against the White estate, contends that the Bankruptcy Amendments and Federal Judgeship Act of 1984 ("the Amendments") requires this Court to withdraw the reference of litigation concerning those claims from the Bankruptcy Court. After careful consideration of the statute and its legislative history, this Court determines that the Bankruptcy Court remains the proper forum for initial proceedings concerning these claims, and denies PBGC's motion.

This Court's jurisdiction over the White reorganization now derives entirely from 28 U.S.C. § 1334.

I.

PBGC is charged with administering the pension plan termination insurance program of Title IV of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1301 et seq., as amended by the Multiemployer Pension Plan Amendments Act of 1980. White, a manufacturer of trucks and other large vehicles, filed for reorganization on September 4, 1980, pursuant to Chapter 11 of the Bankruptcy Reform Act of 1978 ("the 1978 Act" or "the Code"), 11 U.S.C. § 1101 et seq. On November 18, 1983, the Bankruptcy Court issued a Confirmation Order, approving White's reorganization plan and transferring all legal title to relevant property, assets and effects of White to a Reorganization Trust, managed by a Disposition Assets Trustee ("the Trustee"). The Trustee also acquired the authority and duty to pursue White Motor's objections to claims against the estate. The present dispute concerns objections by White, later adopted and supplemented by the Trustee, to PBGC's claims against the estate. PBGC seeks to remove adjudication of two groups of claims to this Court. The following summary of the contested issues in the two proceedings is drawn from pleadings submitted by PBGC and the Trustee to the Bankruptcy Court and to this Court.

A. The Minimum Funding Contributions Claims ("Contribution Claims")

The first fifteen disputed claims involve six pension plans established, sponsored and maintained by White for its employees. After filing for reorganization, White terminated the plans under 29 U.S.C. § 1341, and the date of termination was established as November 30, 1981. 29 U.S.C. § 1348. White and PBGC entered into agreements making the PBGC the trustee of the plans. PBGC claims that on the termination date the plans' assets were approximately $60,000,000 less than the value of the pension payments PBGC must make under ERISA to former White employees and their beneficiaries, and that White owed $17,887,297 in contribution to the plans to satisfy the minimum funding standards of ERISA, 29 U.S.C. § 1082, and the Internal Revenue Code ("IRC"), 26 U.S.C. § 412. For purposes of the current motion, there is no dispute about the amounts owed.

In May of 1982, PBGC as trustee for the plans filed fifteen proofs of claim for unpaid contributions. Six of the fifteen claims concern contributions which were required to be made to the plans during the administration of the estate ("Post-Petition Claims"); PBGC claims that these are administrative expenses entitled to priority under § 507(a)(1) of the Bankruptcy Code. Four claims concern contributions which were required to be made during the 180 days prior to the filing of the reorganization petition ("180-Day Claims"); PBGC claims that these are contributions to benefit plans entitled to priority under § 507(a)(4) of the Code. The remaining claims are unsecured.

On April 7, 1983, White and the official creditors' committee representing unsecured creditors ("Creditors' Committee") filed an Application to Reclassify Certain PBGC Claims ("the Application"). The applicants contended that a substantial portion of the ten secured claims were not entitled to priority status under § 507 and requested that the Bankruptcy Court reclassify them as unsecured claims. On April 26, 1984, the Trustee filed a Supplemental Application to Reclassify Certain PBGC Claims ("the Supplemental Application") which raised additional arguments in support of reclassifying large portions of the alleged priority claims.

Trial on the Application and Supplemental Application commenced in the Bankruptcy Court on June 26, 1984 and continued the following day. In his Trial Brief, the Trustee summarized his case as follows:

The primary issue before this Court is a limited one: whether the . . . Post-Petition Claims asserted by the PBGC, as trustee, for unpaid contributions to pension plans should be entitled to treatment as expenses of administration of the estate of White, despite the fact that said contributions were almost wholly attributable to work performed for White before the filing of the reorganization petition. . . . Only a very small portion of the PBGC\'s . . . Post-Petition Claims may be treated as an expense of administering the estate of the debtor-in-possession, and the remaining portion should be reclassified as non-priority. A second but related issue is whether the . . . 180-Day Claims are entitled to fourth priority treatment even though only a very small portion of those claims "arises from services rendered within 180 days before the date of the filing of a petition or the date of the cessation of the debtor\'s business, whichever occurs first." Again, only a very small portion of the . . . 180-Day Claims may be entitled to priority.

Although White has generally objected to the PBGC\'s claims, the Supplemental Application was filed because the priority issues raised by the PBGC\'s claims are easily isolated from other issues related to the claims and are more manageable from a factual standpoint than the other issues. The priority issues are primarily legal issues that may be resolved based on essentially undisputed facts. At the same time, however, there is in excess of $7 million at stake in the resolution of the priority issues, which amount the Disposition Assets Trustee has been obligated to hold on reserve under White\'s plan of reorganization. Accordingly, the Supplemental Application fulfills the dual objectives of isolating manageable issues for expeditious and efficient resolution and providing a facility for the determination of how over $7 million is to be treated and distributed by the Disposition Assets Trustee.

Consistent with the objectives of the Supplemental Application, the dollar amounts asserted in the PBGC\'s claims are assumed, for purposes of this litigation only, to be accurate. Based upon this assumption, the Disposition Assets Trustee will show at the trial that the maximum possible amount of the contributions entitled to administrative expense priority is approximately $1.35 million for the . . . Post-Petition Claims and a small additional amount for the . . . 180-Day Claims.

It appears from the PBGC\'s extremely wide-ranging discovery that the PBGC is likely to attempt to confuse the issue before the Court by making a variety of extraneous arguments. For example, this action does not involve: (1) the amount of the unpaid contributions, since the PBGC\'s priority claims are assumed to state the correct amounts; (2) the assumptions underlying the computations of such amounts; (3) whether certain forms and schedules were filed by White with the Internal Revenue Service; (4) guarantee letter issues which are the subject of other pending litigation; or (5) issues regarding any pension plans other than those six plans, discussed below, which are the subject of the PBGC\'s priority claims. Any attempts by the PBGC to introduce evidence at trial on any of these extraneous issues will not be relevant to resolution of the reclassification issue and such irrelevant matters should be excluded at the outset of trial.

In its Trial Brief, PBGC stated its position:

The contributions required to comply with ERISA\'s minimum funding standards for the period for the filing of the petition until the termination of the Plans are "actual, necessary costs and expenses of preserving the estate" and are entitled to priority under 11 U.S.C. § 503(b)(1)(B) and (C).

Under ERISA, White could have terminated the Plans at any time, pre- or post-petition, and fixed its minimum funding obligation as of the date of termination. White was aware that it could terminate the Plans, and also was aware that its funding obligations under ERISA increased every day White continued the Plans. White nevertheless continued the Plan until November 1981.3 Insofar as White\'s statutorily-required contributions increased because White continued the Plans after the filing of the petition, priority under Section 507(a)(1) clearly is appropriate.4

The Disposition Assets Trustee would limit priority by asking the Court to ignore the fact that the minimum funding standards impose a unitary obligation that increases every day a plan is maintained. Although the Disposition Assets Trustee seeks to treat a portion of the required contribution to each Plan as if it were a pre-petition debt, the Trustee is well aware that if White had terminated the Plans on the petition date, none of the contributions for which the PBGC

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