Matter of Columbia Gas System, Inc.

• Decision Date: 24 March 1994
• Docket Number: Bankruptcy No. 91-803. Adv. No. 93-44.
• Parties: In the Matter of The COLUMBIA GAS SYSTEM, INC. and Columbia Gas Transmission Corporation, Debtor. The FIRST NATIONAL BANK OF BOSTON, Trustee, Plaintiff, v. The COLUMBIA GAS SYSTEM, INC., Defendant.
• Court: U.S. Bankruptcy Court — District of Delaware

164 B.R. 883 (1994)

In the Matter of The COLUMBIA GAS SYSTEM, INC. and Columbia Gas Transmission Corporation, Debtor.

The FIRST NATIONAL BANK OF BOSTON, Trustee, Plaintiff, v. The COLUMBIA GAS SYSTEM, INC., Defendant.

Bankruptcy No. 91-803. Adv. No. 93-44.

United States Bankruptcy Court, D. Delaware.

March 24, 1994.

COPYRIGHT MATERIAL OMITTED

Michael B. Joseph, Ferry, Joseph & Fink, P.A., Wilmington, DE (Peter W. Benner, Ira H. Goldman, Richard I. Cohen, Christine E. Rua, Shipman & Goodwin, Hartford, CT, of counsel), for plaintiff.

Richard H. May, James L. Patton, Jr., Timothy J. Snyder, Young, Conaway, Stargatt & Taylor, Wilmington, DE (Stroock & Stroock & Lavan, and Cravath, Swaine & Moore, New York City, of counsel), for defendant.

HELEN S. BALICK, Bankruptcy Judge.

MEMORANDUM OPINION AND ORDER

The First National Bank of Boston (FNB) in its complaint seeks declaratory and injunctive relief to remedy alleged conduct of Columbia Gas System, Inc. (CG). FNB is the indenture trustee for security holders under an indenture whereby funds were borrowed to provide for an employee stock ownership plan (ESOP) within CG's Employees' Thrift Plan of Columbia Gas System.

FNB's amended complaint contains three grounds: tortious interference under state law, tortious interference under federal common law and breach of duty. FNB's original complaint contained only the first two counts. CG's motion for summary judgment was filed in response to the original complaint.

I. Jurisdiction

This action is based upon CG's post-petition conduct relating to a pre-petition contract. The factual and legal issues raised in this proceeding are intertwined with reorganization issues. The action is a core proceeding. See, e.g., In re West Electronics, Inc., 128 B.R. 900 (Bankr.D.N.J.1991); In re Hughes-Bechtol, Inc., 132 B.R. 339 (Bankr. S.D. Ohio 1991), aff'd, 144 B.R. 755 (S.D. Ohio 1992).

II. Legal Standard for Summary Judgment

Summary judgment may be granted only if there is no genuine issue of material fact and CG is entitled to judgment as a matter of law. Viewing the record in the light most favorable to FNB, the court concludes that CG's motion must be denied. Fed.R.Civ.P. 56(c), Williams v. Borough of West Chester, 891 F.2d 458, 463-64 (3d Cir.1989); United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 993, 8 L.Ed.2d 176 (1962); Tigg Corp. v. Dow Corning Corp., 822 F.2d 358, 361 (3d Cir.1987); Baker v. Lukens Steel Co., 793 F.2d 509, 511 (3d Cir.1986); Gans v. Mundy, 762 F.2d 338, 341 (3d Cir.), cert. denied, 474 U.S. 1010, 106 S.Ct. 537, 88 L.Ed.2d 467 (1985).

III. Facts

CG established an employee benefit plan (the plan) for its subsidiaries' employees in 1958. In order to hold, administer and invest the plan's assets, CG utilized a trust (the Employees Thrift Plan of Columbia Gas System Trust). Effective April 1990, the plan and trust were enhanced to include a leveraged employee stock ownership plan (the ESOP), a feature designed to provide company stock to the plan's beneficiaries.¹

To finance the ESOP, the trust borrowed the funds. The ESOP trustee entered into an indenture with the Bank of New York² and issued $91,750,000 of 9.875% Amortizing Debentures, Series A, due November 30, 2001. The trustee used the funds to purchase 2,000,000 shares of Columbia's common stock at $45 7/8 per share. This stock was deposited and held in an account called Fund "E."

The ESOP device provided for ESOP Debt Service Contributions and ESOP Allocation Contributions to be made by CG and its subsidiaries to the trust. The ESOP trustee was to pay principal and interest on the loan and release stock from Fund "E" and allocate it to participating employees' individual accounts.

The amount of stock released was determined by a mathematical formula. If the amount to be released from Fund "E" under the formula was insufficient to match the employees' contributions, then CG or its subsidiaries were required to provide the difference by making the ESOP Allocation Contributions to the trust to be disbursed to the employee accounts. (ESOP Matching Allocations).

The trust was obligated to repay principal and interest to the debenture holders on May 31 and November 30 of each year, ending November 30, 2001 (indenture section 4.01). CG guaranteed the transaction on a subordinated basis (indenture section 10.01). Prior to CG's July 1991 bankruptcy filing, the trust paid all installments of principal and interest due to debenture holders. Additionally, the ESOP trustee made one post-petition payment—the trustee paid the November 30, 1991 installment in the amount of $5,673,123.54 by paying $5,626,819.50 on or about December 31, 1991 and $46,304.04 on or about January 15, 1992.

Thereafter, CG announced that further debt service payments would not be made until distribution to all creditors was made under the plan of reorganization. Accordingly, payments of principal and interest due on May 31, 1992 and November 30, 1992 in the amounts of $5,954,664.65 and $5,872,731.71, respectively, were not made.³ The parties agree that these events constitute default under the indenture section 6.01(1)(a).

Following this default, the indenture trustee filed a proof of claim dated February 14, 1992 in CG's bankruptcy case pursuant to CG's guaranty of the loan transaction.

Notwithstanding the ESOP trustee's failure to pay the principal and interest payments to the debenture holders, the trustee continued to pay the ESOP Matching Allocations to the employee accounts. Shortly thereafter, FNB, in its capacity as indenture trustee representing the interests of the debenture holders, filed this proceeding against CG.

IV. Discussion

CG advances six grounds in support of its motion for summary judgment. For simplicity, these can be classified into three categories: ERISA law, bankruptcy law and contract law.

A. ERISA Law

The ESOP is an employee benefit plan which is governed by the Employment Retirement Income Security Act of 1974 (ERISA). CG advances three grounds under ERISA law to justify its request for summary judgment: FNB's lack of standing, preemption and ERISA prohibitions.

1. Standing

CG argues that since FNB is not a participant, beneficiary or fiduciary, it lacks standing to bring its action under ERISA's civil enforcement scheme. ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3). FNB counters that its standing to sue under § 502 is irrelevant because its action is not brought under ERISA nor does it rely on ERISA § 502 in any way. The court agrees with FNB. The amended complaint clearly states that the action is brought under state law, federal common law, and contractual duty theories, not ERISA law. CG's contention that this is actually a disguised ERISA § 502(a)(3) action is without merit.

2. Preemption

CG argues that FNB's action is preempted by ERISA which provides that ERISA "shall supersede any and all state laws insofar as they may now or hereafter relate to any employee benefit plan . . ." ERISA § 514(a), 29 U.S.C. § 1144(a). Such laws include "all laws, decisions, rules, regulations, or other State action having the effect of law." ERISA § 514(c)(1), 29 U.S.C. § 1144(c)(1). CG requests that the court construe the provision broadly, in accordance with its interpretation of United States Supreme Court decisions.

FNB argues that the scope of ERISA preemption is not unbounded. It further argues that ERISA preemption does not extend to preempt this state law cause of action. FNB contends that its unique status distinguishes this case from those actions which ERISA § 514 preempts. Specifically, because FNB is not a plan participant, beneficiary, fiduciary or employer ("a non-principal ERISA entity"), it contends that preemption should not bar its action. The court agrees with FNB and finds that this action is not preempted by ERISA.

Generally, the Supreme Court has construed ERISA § 514 broadly, holding that if a cause of action relates to an ERISA-covered plan, it is pre-empted. Ingersoll-Rand Co., v. McClendon, 498 U.S. 133, 140, 111 S.Ct. 478, 483-84, 112 L.Ed.2d 474 (1990). The definition of "relates to" extends to state actions which "have a connection with or reference to such an ERISA plan." Shaw v. Delta Air Lines, 463 U.S. 85, 97, 103 S.Ct. 2890, 2900, 77 L.Ed.2d 490 (1983). However, the Supreme Court has also noted that "notwithstanding its breadth, we have recognized limits to ERISA's pre-emption clause." Ingersoll-Rand, 498 U.S. at 139, 111 S.Ct. at 483 (citing Mackey v. Lanier Collection Agency & Service, 486 U.S. 825, 108 S.Ct. 2182, 100 L.Ed.2d 836 (1988) and Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 23, 107 S.Ct. 2211, 2223-24, 96 L.Ed.2d 1 (1987)).

In applying these rules to a preemption analysis, the Court has also stated that "in any pre-emption analysis `the purpose of Congress is the ultimate touchstone.'" Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 105 S.Ct. 2380, 85 L.Ed.2d 728 (1985) (citation omitted). ERISA's purpose is as follows:

It is thus clear that ERISA\'s pre-emption provision was prompted by recognition that employers establishing and maintaining employee benefit plans are faced with the task of coordinating complex administrative activities. A patchwork scheme of regulation would introduce considerable inefficiencies in benefit program operation, which might lead those employers with existing plans to reduce benefits, and those without such plans to refrain from adopting them. Preemption ensures that the administrative practices of a benefit plan will be governed by only a single set of regulations.

Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 11, 107 S.Ct. 2211, 2217, 96 L.Ed.2d 1 (1987). Therefore, preemption bars most plaintiffs' actions which are brought outside of ERISA under varied state laws. The provision promotes uniformity by forcing plaintiffs to sue under a single statute, ERISA.

Preemption of this cause of action, however would not promote this purpose. If...