WORKERS'COMP. TRUST FUND v. Saunders, 98-40032 RCL.
| Decision Date | 11 June 1999 |
| Docket Number | No. 98-40032 RCL.,98-40032 RCL. |
| Citation | 234 BR 555 |
| Parties | WORKERS' COMPENSATION TRUST FUND, Appellant, v. Phillip SAUNDERS, as Chapter 7 Trustee of the Estate of John J. Petruzzi-William E. Forrester, Inc., Appellee. |
| Court | U.S. District Court — District of Massachusetts |
Daniel J. Hammond, Attorney General's Office, Boston, MA, for Appellant.
Melvin S. Hoffman, Looney & Grossman, Boston, MA, for Philip Saunders, Jr.
Daniel I. Cotton, Wolfson, Dodson, Kennan & Cotton, Worcester, MA, for John J. Petruzzi, William E. Forrester Incorporated.
The Massachusetts Workers' Compensation Trust Fund ("WCTF" or "Fund") has appealed an order of the bankruptcy court which determined that a claim for reimbursement, filed by WCTF against a bankruptcy estate, was not entitled to priority status as an excise tax under the Bankruptcy Code. After considering the parties' arguments, the court AFFIRMS the decision of the bankruptcy court, although on grounds somewhat different from those upon which the bankruptcy court rested its decision.1 See In re Parque Forestal, Inc., 949 F.2d 504, 510-11 (1st Cir.1991) ().
The following facts are undisputed.
The debtor, John J. Petruzzi — William E. Forrester, Inc. ("Debtor"), was an earth-moving and excavation company located in Massachusetts. On October 11, 1994, the Debtor filed for reorganization under Chapter 11 of the Bankruptcy Code. The bankruptcy court appointed Phillip Saunders, Jr. as the Chapter 11 trustee. In May 1997, the case was converted to a Chapter 7 liquidation case, with Saunders appointed as the Chapter 7 trustee ("Trustee") of the bankruptcy estate.
Shortly before the original petition in bankruptcy was filed, one Francisco Alves, an employee of the Debtor, suffered an injury at the Debtor's workplace. On the date of the injury, the Debtor did not have workers' compensation insurance coverage through a private insurer; nor was the Debtor otherwise insured. The failure of the Debtor to maintain private workers' compensation insurance or otherwise to provide workers' compensation insurance violated Mass. Gen. Laws ch. 152, § 25A. Alves, therefore, sought payment of his workers' compensation claim from WCTF, which is authorized by Mass. Gen. Laws ch. 152, § 65(2) to make workers' compensation payments to employees of uninsured employers. WCTF paid the claim.
On March 26, 1997, pursuant to Mass. Gen. Laws ch. 152, § 65(8), the Massachusetts Department of Industrial Accidents ("DIA"), on behalf of WCTF, filed a claim, in the bankruptcy proceeding, for reimbursement of the amount paid to Alves, asserting priority status of the claim against the bankruptcy estate, in the amount of $72,225.92. The Trustee objected and requested that the bankruptcy court reclassify WCTF's claim as a general, unsecured claim.
The bankruptcy court sustained the Trustee's objection. See In re John J. Petruzzi — William E. Forrester, Inc. (Bankr.D.Mass.1998) (order entered by Boroff, J. in No. 94-44512-HJB). In denying tax priority status to the reimbursement claim, the bankruptcy court relied on the decision of the bankruptcy court in In re Park, 212 B.R. 430 (Bankr.D.Mass.1997) (Queenan, J.); appeal docketed, No. 97-40205 (D.Mass. October 25, 1997). That decision held that a claim for reimbursement made by WCTF for workers' compensation benefits paid on behalf of uninsured employers, pursuant to Mass. Gen. Laws ch. 152 § 65(2), did not qualify for priority status under the Bankruptcy Code as an "excise tax," because the exaction was not universally applicable to similarly-situated entities and because revenues derived from the exaction were not applied to the general welfare. Id. at 436. Thereafter, the WCTF filed the present appeal.
Massachusetts has a comprehensive, statutory workers compensation scheme. See generally Mass. Gen. Laws. ch. 152 (the "Workers' Compensation Statute"). That scheme requires every employer to maintain workers' compensation insurance; the failure to carry such insurance is a violation of state law. See Mass. Gen. Laws ch. 152, § 25A. Massachusetts does not provide a state-administered workers' compensation insurance plan. There is thus no option for an employer to purchase insurance through the state. See id. Massachusetts instead allows an employer three options for providing workers' compensation insurance: an employer may (1) purchase insurance through a private insurance carrier; (2) acquire membership in a state-approved workers' compensation self-insurance group; or (3) become licensed as a self-insurer, a procedure requiring, among other things, the posting of a substantial self-insurance bond. See id.
The workers' compensation system in Massachusetts has undergone a series of changes since the system was created. See generally NASON & WALL, MASSACHUSETTS WORKERS' COMPENSATION REFORM ACT §§ 1.0-1.1 (1995) (supplementing LOCKE, WORKMEN'S COMPENSATION (2d ed.1981)); Daly v. Commonwealth, 29 Mass.App.Ct. 100, 102-04, 557 N.E.2d 758, 760-61 (). A common complaint concerning the pre-1985 workers' compensation system in Massachusetts was that an injured employee of an uninsured employer was unable to obtain compensation unless he or she brought a personal injury action against the employer. See NASON & WALL at § 1.1. Pursuing a tort claim, however, was an inadequate solution for many injured employees because (1) employers were often judgment-proof and (2) a lawsuit did not provide funds necessary for the injured employee's immediate medical care and wage replacement during recovery. See id. § 13.1. To address some of these problems, the Massachusetts legislature enacted what has become known as the Workers' Compensation Reform Act of 1985. See id. § 1.2. That legislation, among other things, created WCTF and the Workers' Compensation Special Fund ("WCSF" or "Special Fund"). See id. § 1.3(12). These two funds are maintained separately from the state's general revenues. See Mass. Gen. Laws ch. 152, § 65(6). The function of WCSF is to pay the operating expenses of DIA. See NASON & WALL § 1.3(12). Among the things WCTF was established to do was the payment of approved claims against uninsured employers made by employees injured on the job.2See id.; see also Mass. Gen. Laws ch. 152, § 65(2)(e). An assessment against employers is the primary source of the revenues for both funds. See generally Mass. gen. Laws ch. 152 § 65; see also NASON v. WALL § 1.3(12). These reforms of the Workers' Compensation Act of 1985 were intended to provide employees of uninsured employers with the same rights, benefits, and duties under the Workers' Compensation Statute as employees of insured employers. See id. § 13.1.
As noted above, WCTF is funded from assessments against employers.3 See Mass. Gen. Laws ch. 152, § 65. The annual amount to be paid by each employer is calculated by a formula, the complications of which need not be set out here. See id § 65(4), 65(5). The assessment against an employer is reckoned annually and thus may vary from year to year. Any employer who fails to pay an assessment is subject to a fine of five percent of the overdue assessment, and the commissioner of DIA may establish a lien on the employer to collect the assessment. See Mass. Gen Laws ch. 152, § 65(5).
After WCTF has paid an approved claim to an injured employee, the commissioner of DIA may seek to recover from the uninsured employer the amount paid to the employee, as well as any "necessary and reasonable" attorney's fees and costs. See Mass. Gen. Laws ch. 152, §§ 65(2), 65(8). There is no particular mechanism prescribed in the Workers' Compensation Statute for the recovery of claims and attorney's fees and costs. Moreover, the claim for reimbursement does not appear to create an automatic lien against a debtor.
The pertinent provisions of the Bankruptcy Code state:
In this case, the narrow issue presented is whether the reimbursement claims due to WCTF from the bankruptcy estate constitute "excise taxes" within the meaning of § 507(a)(8)(E).4
As Judge Queenan in Park pointed out:
The Bankruptcy Code does not define "tax" or "excise tax." Whether an obligation is a tax entitled to priority under the Code is a question of federal law. City of New York v. Feiring, 313 U.S. 283, 285, 61 S.Ct. 1028, 85 L.Ed. 1333 (1941); State of New Jersey v. Anderson, 203 U.S. 483, 491, 27 S.Ct. 137, 51 L.Ed. 284 (1906); In re Pan American Paper Mills, Inc., 618 F.2d 159 (1st Cir.1980). A state statute\'s characterization of an obligation as a tax is not dispositive of the true nature of the obligation. Feiring, 313 U.S. at 285, 61 S.Ct. 1028. Nor is the statutorily proscribed (sic) remedy dispositive on the issue. Id.; Anderson, 203 U.S. at 493, 27 S.Ct. 137. However, courts look to the provisions of the state law giving rise to the claim in order to determine whether the obligation has the incidents of a tax. See Feiring, 313 U.S. at 285, 61 S.Ct. 1028; In re Adams, 40...
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