Mansfield Tire and Rubber Co., In re

• Decision Date: 29 September 1981
• Docket Number: No. 81-3101,81-3101
• Citation: 660 F.2d 1108
• Parties: 5 Collier Bankr.Cas.2d 204, 8 Bankr.Ct.Dec. 142, Bankr. L. Rep. P 68,356 In re MANSFIELD TIRE AND RUBBER COMPANY, Debtor, STATE OF OHIO, Industrial Commission of Ohio, William Johnston, Chairman, and the Bureau of Workers' Compensation, Robert C. Daugherty, Administrator, Appellants, v. MANSFIELD TIRE AND RUBBER COMPANY, Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1108

660 F.2d 1108

5 Collier Bankr.Cas.2d 204, 8 Bankr.Ct.Dec. 142,

Bankr. L. Rep. P 68,356

In re MANSFIELD TIRE AND RUBBER COMPANY, Debtor STATE OF OHIO, Industrial Commission of Ohio, William Johnston, Chairman, and the Bureau of Workers' Compensation, Robert C. Daugherty Administrator, Appellants, v. MANSFIELD TIRE AND RUBBER COMPANY, Appellee.

No. 81-3101.

United States Court of Appeals Sixth Circuit.

Argued July 7, 1981.

Decided Sept. 29, 1981.

Bernard C. Fox, Jr., Asst. Atty. Gen., Worker's Compensation Section, Thomas Skilken, Columbus, Ohio, for appellants.

Wallace W. Walker, Jr., Joseph Patchan, Susan B. Collins, Baker & Hostetler, Diane P. Zielinski, Cleveland, Ohio, for appellee.

Before WEICK, ENGEL and JONES, Circuit Judges.

WEICK, Circuit Judge.

The Industrial Commission of Ohio, Bureau of Workers' Compensation, the State of Ohio and its officers have appealed directly to this court under 28 U.S.C. § 1293(b) (Supp.1981) from an order of the Bankruptcy Court for the Northern District of Ohio, Western Division, entered in Chapter Eleven proceedings, in which Mansfield Tire and Rubber Company (Mansfield) is the Debtor. The sole issue in the case, as stated in the order of the Bankruptcy Court from which the appeal is taken, was whether the actions of the Industrial Commission of Ohio in adjudicating the claims of Mansfield's employees for workers' compensation benefits pursuant to Chapters 4121 and 4123 of the Ohio Revised Code amount to enforcement of the police or regulatory powers of the State of Ohio. If the actions of the Industrial Commission in adjudicating such worker's compensation claims for benefits did amount to enforcement of the police or regulatory powers of the State, then they are exempt from the automatic stay provisions of the Bankruptcy Act, 11 U.S.C. § 362. The appellants had filed an adversary complaint against the Debtor in the Bankruptcy Court seeking the order vacating the automatic stay asserting that the activities of the Industrial Commission in administering Ohio's workers' compensation laws were expressly excepted from the automatic stay by virtue of sections 362(b)(4) and 362(b)(5) of the Act because the stay would disrupt the administration of the law. The Bankruptcy Court was of the opinion that the activities of the Industrial Commission of Ohio in adjudicating workers' compensation claims did not amount to enforcement of the police or regulatory powers of the State and hence were not excepted from the automatic stay under sections 362(b)(4) and 362(b)(5). The Bankruptcy Court declined to vacate the stay and dismissed appellants' complaint. The result is that the Industrial Commission of Ohio has been enjoined from performing its statutory duties authorized by the Constitution of Ohio in processing the claims of Mansfield's employees for workers' compensation for personal injuries, death or occupational disease arising out of their employment by Mansfield. The injunction is in effect until further order or the termination of the proceeding which was commenced in 1979. Mansfield has not cited a single case where any bankruptcy court has ever entered such an order and we have found none. To say the least, Mansfield's injured workers are not being treated fairly by Mansfield. We are of the opinion, for the reasons hereinafter set forth, that the order appealed from is erroneous and we reverse and vacate the stay.

I

Workers' Compensation is mandated by the Ohio Constitution, as amended, Article II, Section 35 (1923) ¹ and has been in effect since 1912. Ohio Revised Code, Chapters 4121 and 4123 were enacted by the Ohio legislature under the constitutional grant of authority. Participation in and compliance with the compensation program in Ohio is mandatory for all employers who employ more than one employee. Ohio Rev.Code § 4123.35.

Claims of workers for injury, occupational disease or death must be filed with and are determined by the Industrial Commission of Ohio which has exclusive jurisdiction subject only to appeal to the Common Pleas Court of Ohio and Ohio appellate courts. No other courts have jurisdiction, not even federal courts.

An Ohio employer may comply with the law in one of two ways. The employer may make payments into the State Insurance Fund in the amount of premium fixed by the Industrial Commission. Such employers are liable only for the payment of premiums and the State Insurance Fund is responsible for the payment of benefits. Claims for unpaid premiums against bankrupt employers are entitled to priority under section 64(a)(4) of the Bankruptcy Act of 1898. In re Pan American Paper Mills Inc., 618 F.2d 159 (1st Cir. 1980). Alternatively, the employer has the option to operate as a "self-insured" employer. The latter method is accomplished by meeting certain preliminary requirements not relevant here and by posting bonds or other securities with the Industrial Commission to secure the performance of its obligations as a self-insurer. In case of disagreement between a worker and a self-insurer over the validity of a claim, it is resolved by the Industrial Commission as the employer has no authority to reject claims.

Mansfield has been doing business in Ohio since 1912 and was amenable to the Worker's Compensation Act of the State of Ohio. From July 1, 1958, until November 1, 1978, Mansfield operated as a self-insured employer under the Act. Although the briefs and the record on appeal are not as clear as they should be, it appears that for each of these years Mansfield arranged through bonding companies for the deposit of surety bonds with the Industrial Commission as security for the performance of its duties as required by law. In one year, Mansfield assigned a $100,000 United States Treasury Note due July 31, 1979, to the Industrial Commission absolutely. The rights and duties of the parties as regard that note were not before the Bankruptcy Court nor are they before this court.

On November 1, 1978, Mansfield elected to insure future workers' compensation liability by paying into the State Insurance Fund the amount of premium as fixed by the Industrial Commission pursuant to Ohio Rev.Code § 4123.35. For those claims which arose prior to November 1, 1978, Mansfield continued to pay benefits directly to its employees.

On September 19, 1979, Mansfield ceased paying the pre-November 1, 1978, self-insured claims and thus became, as regards those claims, a "non-complying employer" under Ohio Rev.Code § 4123.75. As far as this court can determine from the briefs, record and oral argument, there are apparently about 400 worker claims by Mansfield employees which arose during the years 1958 to 1978. These claims are apparently in various stages of administration. Most, we assume, have been finally adjudicated and payments were being made to the workers by Mansfield. There may also be some claims which have not been finally adjudicated, such process having been automatically stayed by the Bankruptcy Court.

On October 1, 1979, Mansfield filed a petition under Chapter 11 of the Bankruptcy Act. With the filing of the petition, the automatic stay provisions of 11 U.S.C. § 362(a) went into effect, and by the terms of § 362(a)(1), ² the appellants were automatically stayed from administering Ohio's workers' compensation laws as they apply to Mansfield.

On November 13, 1979, the appellants filed an adversary complaint in the Bankruptcy Court requesting that the automatic stay be lifted inasmuch as appellants are exempted from the automatic stay provisions by the exceptions provided in 11 U.S.C. § 362(b)(4) and (5). ³

By order of the Bankruptcy Court on December 7, 1979, Mansfield was authorized to continue to fulfill its self-insured responsibilities for the years 1958 to 1978 and was ordered to continue making its premium payments to the Industrial Commission in accordance with its state-insured status. The interim order also permitted the Industrial Commission to continue to adjudicate the workers' compensation claims of Mansfield employees in accordance with Chapters 4121 and 4123 of the Ohio Revised Code. This was an interim order governing the conduct of the parties until a final decision on appellants' adversary complaint was rendered. The operations of Mansfield and the Industrial Commission under the interim order have not been shown to have any detrimental effect on the Chapter Eleven proceedings or the other creditors of Mansfield and in our opinion should have been continued until the estate is closed.

By an Opinion and Order of January 13, 1981, the Bankruptcy Court ruled that the exceptions contained in 11 U.S.C. § 362(b)(4) and (5) did not apply to the appellants and dismissed their complaint. In our opinion, this was error and we reverse and vacate the automatic stay.

II

As a result of the parties' failure to crystalize the facts and issues before this court, we must first dispose of one area of potential dispute, to wit, the status of those workers' compensation claims which may have arisen or were filed following the filing of the bankruptcy petition on October 1, 1979. These claims were not addressed in the briefs, and at oral argument the panel was presented with contradictory statements of counsel. It is not clear to this court that such claims even exist particularly with respect to factory workers since it has come to the court's attention that Mansfield ceased its manufacturing operations in Ohio on or about August 25, 1978, a fact which was not disclosed to us by counsel. ⁴ The parties did agree on one fact: that Mansfield has continued to make its premium payments. On appeal, however, Mansfield did contest the right of the Industrial Commission to process these claims. In response to this contention and the very broad language of the Bankruptcy Court's opinion we note that the automatic stay provisions of § 362(a), by their terms, apply only to those actions which were or could have been commenced prior to...