Opinion
CASE NO. 16-23208
03-29-2019
IN THE MATTER OF: ALGOZINE MASONRY RESTORATION, INC. Debtor
Chapter 11 MEMORANDUM AND DECISION REGARDING DEBTOR'S OBJECTION TO CLAIMS 19 , 20, AND 21
I. Statement of the Proceedings
On March 8, 2017, the Chicago Area Joint Welfare Committee for the Pointing, Cleaning and Caulking Industry, Local 52, the Tuckpointers Local 52 Pension Plan, and the Tuckpointers Local 52 Defined Contribution Annuity Trust Fund (hereafter collectively referred to as "Local 52") each filed a timely proof of claim in the immediate case. The claims were docketed as claim numbers 19, 20, and 21 respectively and sought priority treatment as to the following amounts: claim number 19 for $65,658.83, claim number 20 for $56,057.90, and claim number 21 for $34,621.36. Subsequently, Debtor filed an omnibus objection to the foregoing claims and alleged that it was not properly credited for payments it made during the 180 day period prior to filing its petition for relief.
This dispute ultimately transformed into whether each of the three claims (19, 20, and 21) is subject to the priority cap imposed by § 507(a)(5) of the Bankruptcy Code, or whether the claims are collectively subject to a single cap. The matter is before this Court following initial and supplemental hearings on Debtor's objection to claim numbers 19, 20 and 21 and Local 52's response, together with supplemental briefs. For the reasons stated herein, the Court finds that Debtor's objection should be overruled.
Due to the factual stipulations presented to the Court, the parties conceded that a final evidentiary hearing was unnecessary.
In its objection, Debtor asserts that it would be inappropriate to allow each claim in dispute priority status, to the extent provided under § 507(a)(5), and instead, endorses an approach where the priority limit of § 507(a)(5) (i.e., $12,850 multiplied by the number of employees) is the maximum amount allowable as to all three claims filed by Local 52. Otherwise, according to Debtor: "if a union has several different [benefit] plans the priority claim would grow much larger than intended by Congress" and for each claim, "Local 52 could recover a total of $38,550.00 per employee ($12,850 X 3 funds) instead of the balance of funds not paid as § [507](a)(4) claim, while employees could only recover a maximum of $12,850.00." This, Debtor believes, "would lead to absurd results" in that "employee benefits plan [sic] could recover far more than employees by creating additional funds, such that they would alter the entire priority scheme under § 507." Debtor does not argue that Local 52's claims are not allowable, per se, but disputes only the extent to which they are entitled to priority treatment. On the other hand, Local 52 contends that the priority portion of each claim should be subject to the limit set by § 507(a)(5).
Debtor's supplemental brief in support of its Objection at 2 (Docket Entry #157).
Id.
At a hearing held on September 13, 2018, the parties stipulated that if the Court adopts Debtor's application of § 507(a)(5), then Local 52's claims will be afforded priority status in the amount of $5,556.34 (collectively, for claims 19, 20, and 21). The parties also agreed that if the Court adopts Local 52's preferred application of § 507(a)(5), then its three claims will be entitled to priority treatment in the collective amount of $51,216.86.
The Court has jurisdiction over this contested matter pursuant to 28 U.S.C. § 1334(b), 28 U.S.C. § 157(a) and (b), and N.D. Ind. L.R. 200-1. This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B).
II. Analysis
The sole issue before the Court is the extent to which Local 52's three claims are entitled to priority treatment under 11 U.S.C. § 507(a)(5). As the parties have stipulated to the material facts, this case presents a question of statutory construction. When interpreting a statute, courts must first and foremost give words their plain meaning, unless doing so frustrates the overall purpose of the statutory scheme, leads to absurd results, or contravenes clearly expressed legislative intent. United States v. Vallery, 437 F.3d 626, 630 (7th Cir. 2006) (citing United States v. Jones, 372 F.3d 910, 912 (7th Cir.2004)). However, the absurd results doctrine "does not license courts to improve statutes (or rules) substantively, so that their outcomes accord more closely with judicial beliefs about how matters ought to be resolved." Jaskolski v. Daniels, 427 F.3d 456, 461 (7th Cir. 2005). In examining legislative intent, courts must be mindful that "[i]t is easy to announce intents and hard to enact laws; the Constitution gives force only to what is enacted. So the text is law and legislative intent a clue to the meaning of the text, rather than the text being a clue to legislative intent." Continental Can Co. v. Chicago Truck Drivers, 916 F.2d 1154, 1157-58 (7th Cir. 1990). Equitable motivations do not give courts the authority to improve upon the plain language of a statute. Young v. Schmucker, 409 B.R. 477, 481 (N.D. Ind. 2008) (citing In re Platter, 140 F.3d 676, 681 (7th Cir. 1998)).
Pursuant to § 507(a)(5), "claims for contributions" to "an employee benefit plan...arising from services rendered within 180 days before the date of the filing of the petition..." are entitled to priority treatment. However, under this subsection, a claim is entitled to priority status only to the extent of, "the number of employees covered by each such plan multiplied by $12,850"; less "the aggregate amount paid to such employees under [§ 507(a)(4)] of this subsection, plus the aggregate amount paid to the estate on behalf of such employees to any other employee benefit plan." Under § 507(a)(4), a claim is accorded priority status to the extent of $12,850 for unpaid wages, salaries, or commissions that are "earned within 180 days before the date of the filing of the petition...".
11 U.S.C. §§ 507(a)(5)(B), emphasis supplied.
The plain and unambiguous language of the foregoing statute clearly contemplates that, in a single bankruptcy case, more than one "employee benefit plan" may file a claim, i.e., "claims for contributions", and that the priority limit set forth therein applies to "each such plan"; which, could only refer to - each claim that is filed in the case by, or on behalf of, an employee benefit plan. This notion is consistent with other courts that have, in fact, treated claims filed in a single case by various employee benefit plans as separate claims, each subject to the stated statutory priority limit. See, e.g., In re New England Cartage Corp., 220 B.R. 503 (Bankr. D. Mass. 1998).
Debtor contends that the statute, as applied, leads to an absurd result due to the fact that a union/benefit plan could "recover far more than employees by creating additional funds", which would frustrate the overall purpose of the Code's priority scheme and was not the "intent of Congress in granting a lower priority claim to employee benefits plans...". In other words, according to Debtor, the end result disrupts the intended legislative priority of any employee wage claims that may be filed in a case and is therefore absurd. The Court disagrees.
Debtor's supplemental brief in support of its Objection at 2 (Docket Entry #156). --------
The three separate employee benefit plans in this case are unquestionably components of the employees' total compensation package. The provisions of § 507(a)(5) intend to capture the portions of the employees' compensation for services that are not covered by § 507(a)(4). See Howard Delivery Serv. v. Zurich Am. Ins. Co., 547 U.S. 651, 659 (2006)(stating that the main office of § 507(a)(5) is to capture portions of employee compensation for services rendered not covered by § 507(a)(4)). As the Supreme Court stated in Howard Delivery Serv, the Code's "juxtaposition of the wages and employee benefit plan priorities manifests Congress' comprehension that fringe benefits generally complement, or 'substitute' for, hourly pay." Id. (citing H.R. Rep. at 357, which noted that "the realities of labor contract negotiations, under which wage demands are often reduced if adequate fringe benefits are substituted"). Therefore, affording priority treatment to a portion of the delinquent employee benefit plan contributions is an additional legislative means to compensate employees for the work they performed in the 180 day period prior to the petition. Applying this analysis, the Court finds that allowing priority treatment for the three claims, in the manner advanced by Local 52, is permitted under the plain meaning of § 507(a)(5), is consistent with the goal of the statute, and does not lead to an absurd result.
For the foregoing reasons, Debtor's Objection is OVERRULED and claim numbers 19, 20, and 21 are entitled to priority treatment in the stipulated amount of $51,216.86. Local 51 is granted leave to amend its proofs of claim accordingly.
All of the foregoing is hereby ordered, adjudged, and decreed in Hammond, Indiana on March 29, 2019.
/s/ James R. Ahler
James R. Ahler, Judge
United States Bankruptcy Court