In re Wingspread Corp., Bankruptcy No. 87-B-10618 to 87-B-10630
| Decision Date | 14 June 1993 |
| Docket Number | Adv. No. 92-9518A.,Bankruptcy No. 87-B-10618 to 87-B-10630 |
| Parties | In re WINGSPREAD CORPORATION, et al., Debtors. Harold YOUNG, as Chapter 7 Trustee of Wingspread Corporation and its twelve subsidiaries, Debtors, Plaintiff, v. PARAMOUNT COMMUNICATIONS INC., f/k/a Gulf & Western Industries, Inc., Kayser-Roth Corporation, and the Bank of New York, in its capacity as Trustee of the Wingspread Corporation Salaried Retirement Plan, Defendants. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
Hahn & Hessen by George Hahn and Rosanne Thomas, New York City, for Harold Young, as Chapter 7 Trustee of the Wingspread Corp. and its twelve subsidiaries, debtors.
Weil Gotshal & Manges by Marcia Goldstein and Kevin Barrett, New York City, for Paramount Communications Inc. and Kayser-Roth Corp.
On April 6, 1987, Wingspread Corporation and its related subsidiaries filed for voluntary relief under Chapter 11 of the Bankruptcy Code. The cases were from their inception and remain to this day extraordinarily contentious. The conversion of the reorganization cases to liquidations under Chapter 7 did not abate the litigation. I likely have issued more decisions in these cases than in any other case during my judicial tenure.
In this particular dispute, Harold Young, the Chapter 7 trustee charged with the liquidation of Wingspread Corporation and its twelve subsidiaries ("Wingspread"), on the one hand, and defendants Paramount Communications and Kayser-Roth Corporation (collectively, "the Paramount Defendants"), on the other, each seek summary judgment declaring them entitled to certain reversionary assets contained in an over-funded employee benefits plan established by Wingspread pursuant to the 1985 leveraged buyout of Kayser-Roth.
Wingspread was a holding company, incorporated primarily to facilitate a management-led leveraged buyout in which Wingspread acquired certain assets and stock from Kayser-Roth Corporation ("Kayser-Roth"). At the time of the LBO, Paramount Communications Inc. ("Paramount"), formerly known as Gulf & Western Industries, Inc., was the corporate parent of Kayser-Roth. As part of the LBO and pursuant to a purchase agreement dated June 20, 1985, Kayser-Roth transferred certain assets and the concomitant liabilities of the Kayser-Roth Salaried Retirement Plan (K-R Plan) to Wingspread. See Wingspread Statement of Material Facts at Exh. A. Wingspread thereafter adopted its own pension plan (the "Wingspread Plan") Id. Exh. B, identical in all material aspects to the K-R Plan. Id. Exh. A at Section 12(b)(xv), p. 67. The Wingspread Plan protected accrued benefits of certain of Wingspread's employees who had been employed by Kayser-Roth prior to the LBO and who had participated in the K-R plan as of July 2, 1985. It also covered new employees of Wingspread subsequent to the LBO. Plan assets were held and invested by the Bank of New York, as trustee of the Wingspread Plan. The Purchase Agreement provided, among other things, that should Wingspread choose to terminate the Plan during the first five years subsequent to the LBO, and should there be at that time a surplus of assets over liabilities, Kayser-Roth would have a right to payment of some amount of cash derived from a stated formula based on the reversionary assets. Id. at Section 12(b)(xix), at pp. 71-72. More particularly, if Wingspread terminated the Plan during the fourth or fifth years following the LBO, and if there were a surplus, the amount paid to Kayser-Roth would be credited against the obligations due under the note which constituted part of the purchase price Wingspread paid for the assets. In other words, if the Wingspread Plan were terminated within the fourth or fifth years after the acquisition, at a time when the Plan's assets exceeded liabilities, Wingspread would be obligated to utilize a specified portion of the surplus in the Wingspread Plan, which in the absence of the purchase agreement would flow only to Wingspread, to prepay part of Wingspread's indebtedness to Kayser-Roth.
At the time that Wingspread purchased the businesses, the K-R Plan, which until then had been funded by Kayser-Roth, was overfunded. In October, 1989, when I authorized and directed the Chapter 7 Trustee to terminate the Wingspread Plan and distribute its assets to Plan participants and their beneficiaries, the Plan was still overfunded. That termination gave rise to a reversionary asset pool of approximately $840,000, which funds have become the focus of this dispute. Recognizing that whatever distribution, if any, which may be made to unsecured creditors in these cases will be modest at best, the Paramount Defendants would very much like to be declared the owners of a ratable share of the reversionary asset pool. The rather unpalatable alternative, from their perspective, is that they will be denominated, as the chapter 7 trustee urges is appropriate, unsecured creditors, owed a claim by virtue of the provisions in the Purchase Agreement obligating Wingspread to make a payment to Kayser-Roth upon the termination of the Wingspread Plan within the relevant time period.
In October, 1990, having terminated the Wingspread Plan, the chapter 7 trustee sought an order directing the Bank of New York as the Wingspread Plan trustee to pay over to him the reversionary assets for distribution to the debtors' estates. The chapter 7 trustee claimed that pursuant to section 13.6 of the Wingspread Plan, any amounts which remained after the Plan trustee satisfied all liabilities of the trust with respect to Plan participants and their beneficiaries would revert to Wingspread. See Wingspread Statement of Material Facts Exh. B, § 13.6 at p. 81. Paramount objected, asserting that it retained a property interest in these reversionary assets. Because of the dispute, I directed the Wingspread Plan trustee to continue holding these reversionary assets pending resolution of this matter.
In July 1992, almost two years later, the chapter 7 trustee commenced this adversary proceeding, seeking 1) a declaration that the estates' interest in these reversionary assets was superior to any claim that the Paramount Defendants might have to them, and 2) an order directing the Wingspread Plan trustee to turn over those reversionary assets to the trustee for distribution to the estates' creditors. The Paramount Defendants answered in September, 1992, asserting counterclaims which alleged that Kayser-Roth had never sold its interest in the reversionary assets when it entered into the Purchase Agreement with Wingspread and therefore Wingspread held these assets in trust for Kayser-Roth. Id. Exh. E. After the trustee replied to the counterclaims, both Wingspread and the Paramount Defendants moved for summary judgment with respect to the issue of ownership of the reversionary assets. The Paramount Defendants argue that prior to the purchase and LBO, Kayser-Roth was the "employer" of the K-R Plan and the entity responsible for overfunding that plan. Thus, they say, under ERISA, Kayser-Roth held an ownership interest in the reversionary assets as the "employer" of the K-R Plan. As Kayser-Roth puts it, the parties did not intend that Kayser-Roth would transfer its reversionary interest to Wingspread as part of the purchase and LBO. In fact, the Paramount Defendants point out, the Purchase Agreement and subsequent Wingspread Plan provided, among other things, that should Wingspread terminate the Wingspread Plan within the first five years after the purchase and LBO, Kayser-Roth would be paid a certain amount derived by formula based on those very reversionary assets. Thus, notwithstanding the subsequent purchase and LBO, Kayser-Roth asserts that it was the "obvious intent" of the parties that it retain its interest in these reversionary assets. The Wingspread Plan, by its terms, they say, is "clear evidence" that Kayser-Roth and Wingspread "both understood that Kayser-Roth owned an interest in the surplus pension assets" created upon the chapter 7 trustee's termination and liquidation of the Plan, and that both parties "intended that Kayser-Roth would retain its reversionary interest in the transferred assets for a stated period of time." See Paramount Defendants' Memorandum of Law at pp. 7-9. Since it is undisputed that Wingspread terminated the Plan within five years of the purchase and LBO, Kayser-Roth concludes, its interest in these reversionary assets is superior to that of the chapter 7 trustee, with the chapter 7 trustee holding these assets in trust for the Paramount Defendants.
The trustee concedes that Kayser-Roth was the "employer" under the old K-R Plan for purposes of ERISA and the holder of the exclusive ownership interest in the reversionary assets under the old K-R Plan. However, he urges, subsequent to the purchase and LBO, Wingspread became the "employer" under the Wingspread Plan. Whatever reversionary interest Kayser-Roth previously held, the argument continues, Kayser-Roth transferred to Wingspread pursuant to the purchase and LBO. As evidence, Wingspread points to the fact that the Purchase Agreement, which memorialized the LBO, is devoid of any terms or conditions which would have assigned Kayser-Roth rights in the reversionary assets. Wingspread asserts that section 12(b)(xix) of the Purchase Agreement granted Kayser-Roth nothing more than a right to payment from Wingspread, which arose due to Wingspread's having terminated its Plan within five years after the purchase. Clearly, Wingspread posits, if Kayser-Roth intended to retain its interest in the reversionary assets, Kayser-Roth, which drafted the Purchase Agreement, would have expressly exempted those assets from transfer. That Kayser-Roth did not, Wingspread concludes, is a clear indication that Kayser-Roth transferred the assets to Wingspread.
Federal Rule of Civil Procedure 56(c), made applicable to...
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