Matter of Computerized Steel Fabricators, Inc.
| Decision Date | 08 May 1984 |
| Docket Number | Arrangement No. 78 B 883. |
| Citation | 40 BR 344 |
| Parties | In the Matter of COMPUTERIZED STEEL FABRICATORS, INC., Debtor. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
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Arutt, Nachamie, Benjamin, Lipkin & Kirschner, P.C., New York City, for debtor.
Sipser, Weinstock, Harper, Dorn & Leibowitz, New York City, for Pension Fund for Iron Workers Local 455.
The reorganized Chapter XI debtor, Computerized Steel Fabricators, Inc. ("Computerized"), seeks to punish for contempt Pension Fund Iron Workers Local 455 ("Pension Fund" or "Fund") for the Pension Fund's post-confirmation efforts to collect from the debtor an alleged withdrawal liability under the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA), Pub.L. No. 96-364, 94 Stat. 1208, amending the Employee Retirement Income Security Act (ERISA), codified at 29 U.S.C. §§ 1001 et seq., which provides that if an employer ceases operations and terminates its employees, a withdrawal liability shall be incurred by the employer to the union involved. At the hearing regarding this issue, Computerized noted that it was not pressing the contempt aspect of its motion but rather urged that this court's previous order of confirmation discharged Computerized's obligations under its union contract, including the potential withdrawal liability.
On May 15, 1978, Computerized filed a voluntary petition for an arrangement under Chapter XI of the Bankruptcy Act of 1898 as amended. At that time, Computerized was a party to a collective bargaining contract with Shopmen's Local Union No. 455, International Association of Bridge Structural and Ornamental Iron Workers, AFL-CIO (Local 455). At no time during the course of the Chapter XI proceedings did Computerized seek to reject the collective bargaining agreement as an executory contract in accordance with the provisions of Section 313(1) of the Act. Indeed, a new collective bargaining agreement was executed by Computerized and Local 455 in April, 1980, effective from July 1, 1979 through the pendency of the Chapter XI proceedings. Moreover, at no time during the Chapter XI proceedings did the Fund or Local 455 make any claim for existing or prospective withdrawal liability under MPPAA. The only claim filed by the Fund in the Chapter XI case was for delinquent monthly contributions owed under the collective bargaining agreements. The Fund's proof of claim stated that the Fund reserved all claims which the Fund might have by reason of statutory mandates.
On November 23, 1981, Computerized was discharged pursuant to this court's order of confirmation with respect to the Chapter XI plan of arrangement. Computerized continued in operation as a going concern and continued its contributions to the Fund until June, 1982. Two months earlier, Computerized notified Local 455 by letter dated April 20, 1982, that it would not renew its contract with Local 455, which was to expire by its terms on June 30, 1982. In June, 1982, Computerized permanently ceased all operations.
By letter dated May 6, 1983, one and one-half years following confirmation of Computerized's plan of arrangement, the Pension Fund notified Computerized that Computerized owed the Fund the sum of $201,342 as a withdrawal liability under MPPAA, which consisted of $33,800.79 for pre-petition debt; $142,137.77 for debtor-in-possession liability; and $25,403.44 for post-confirmation liability.
Paragraphs 3, 4, and 5 of the November 23, 1981 Order of Confirmation1 provide that the arrangement shall be binding on all claims affected by the plan; that the debtor shall be discharged of all its unsecured debts; and that all creditors affected by the arrangement shall be enjoined from taking any action in connection with such discharged claims. Computerized maintains that as a result of this court's order of confirmation and discharge, there was no post-confirmation contract in existence between Computerized and Local 455 to which withdrawal liability could attach and that any such claim for pre-confirmation involvement was discharged.
Computerized questions Pension Fund's assertion of a post-confirmation claim for withdrawal liability in accordance with the provisions of The Multiemployer Pension Plan Amendments Act of 1980 (MPPAA), Pub.L. No. 96-364, 94 Stat. 1208, codified in scattered sections of 29 U.S.C. §§ 1001 et seq. The rationale for MPPAA is the assurance of pension rights for employees who might otherwise lose vested pension benefits when plans are terminated. In 1974, Congress enacted the Employee Retirement Income Security Act (ERISA), 29 U.S.C. §§ 1001 et seq. Under ERISA, the Pension Benefit Guaranty Corporation was created to provide insurance coverage for pension plan benefits in the event that a plan was terminated. However, multiemployer plans were not insured absolutely as were single employer plans. The participants in a terminated multiemployer plan might receive from the Pension Benefit Guaranty Corporation, at its discretion, the difference between the value of their guaranteed benefits and the value of the plan's assets on the date of termination. 29 U.S.C. § 1381(c)(2) (1974). If a plan terminated within five years of an employer's withdrawal from such plan and there were insufficient plan assets to provide benefits, the withdrawing employer became liable to the Pension Benefit Guaranty Corporation for the employer's proportionate share of the benefits paid, up to thirty percent of such employer's net worth. 29 U.S.C. §§ 1362, 1364. The problem of employer withdrawal was crucial in declining industries because withdrawals reduced the pension plan's contribution base and increased the financial burden on the remaining employers in order to fund past service liabilities. H.R.Rep. No. 869, 96th Cong., 2d Sess. 53-54 (1980), reprinted in 1980 U.S. Code Cong. & Ad.News 2918, 2922. One of the loopholes under ERISA was that an employer could withdraw from a plan and hope that the plan would survive for more than five years, in which event the employer would escape any withdrawal liability.
In order to close the five-year escape hatch for withdrawing employers, Congress enacted legislation in the Spring of 1979 which ultimately became the MPPAA on September 26, 1980, with retrospective effectiveness back to April 29, 1980. See 29 U.S.C. § 1461(e)(2). The retroactive date was used to prevent an employer from withdrawing from a plan under the lenient rules then current. 123 Cong.Rec. 20,234 (1980) (statement of Senator Matsunaga). Under the 1980 amendments, an employer who withdraws from an ongoing multiemployer pension plan becomes absolutely liable on the date of withdrawal for a proportionate share of the plan's unfunded vested liability. Textile Workers Pension Fund v. Standard & Finishing Co., Inc., 725 F.2d 843 (2d Cir. 1984). "No longer did such behavior employer's withdrawal give rise, as it had under ERISA, to a contingent liability payable to the PBGC." Peick v. Pension Benefit Guaranty Corporation, 539 F.Supp. 1025, 1033 (N.D.Ill.1982).
29 U.S.C. § 1383(a). The liability of a withdrawing employer as calculated under MPPAA is expressed in 29 U.S.C. § 1391(b), which in general terms consists of multiplying the plan's aggregate unfunded vested liability by a fraction whose numerator is the sum of all contributions required to have been made by the withdrawing employer during the previous five years. The denominator is the sum of all contributions made by all employers during this same five-year period. In view of the fact that Computerized ceased all covered operations under the plan in June, 1982, it is deemed to have effected a complete withdrawal from a multiemployer plan covered under MPPAA at that time. Hence, the withdrawal liability claimed by the Pension Fund in the instant case implicates Computerized's aggregate contributions for the plan years 1978 through 1982, notwithstanding that Computerized's Chapter XI plan of arrangement was confirmed on November 23, 1981.
Computerized's contract with Local 455 was not rejected during the Chapter XI case. Instead, a new collective bargaining agreement was executed in 1980 which was to continue until June 30, 1982. This contract was never rejected by the debtor before the entry of the order of confirmation on November 23, 1981. Computerized maintains that by reason of the confirmation order and the discharge granted under Section 371 of the Act,2 its contractual liability to Local 455 and the Pension Fund was extinguished. However, this position misses the point that an executory contract may be rejected in a Chapter XI case under Section 313(1) only by affirmative action and that unless it is so rejected, the contract continues in effect. See Federal's Inc. v. Edmonton Investment Co., 404 F.Supp. 68, 71 (E.D.Mich.1975), aff'd, 555 F.2d 577 (6th Cir.1977); 8 Collier on Bankruptcy ¶ 3.156, at 204 (J. Moore 14th ed. 1978). Thus, the non-debtor party to such a contract does not have a provable claim because such party's claim does not arise under the Act until the contract has been rejected. In re Greenpoint Metallic Bed Co., Inc., 113 F.2d 881, 883-84 (2d Cir. 1940); Mohonk Realty Corp. v. Wise Shoe Stores, Inc., 111 F.2d 287, 290 (2d Cir. 1940); Collier on Bankruptcy, supra, ¶ 3.1510, at 208. Accordingly there can be no discharge or extinguishment of the Pension Fund's claim by the order of confirmation because the Pension Fund did not have a provable claim while the union contract continued during the Chapter XI case and while the debtor continued to make contributions in accordance with MPPAA.
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