Opinion
Case No. 09-12869
02-03-2012
In re: SL Liquidating, Inc., et al., Debtor, Kenneth E. Morrison Claimant, v. SL Liquidating, Inc., et al., Debtor.
This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
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Burton Perlman
United States Bankruptcy Judge
Jointly Administered
Judge Burton Perlman
ORDER SUSTAINING THE POST-CONSUMMATION TRUST ADMINISTRATOR'S
SIXTEENTH OMNIBUS OBJECTION TO THE CLAIM OF KENNETH E. MORRISON
In these jointly administered chapter 11 cases Kenneth E. Morrison (hereafter "Claimant") filed three proofs of claim, all for the same amount. Claimant had been employed by Senco Products Inc. (now debtor SP Liquidating, Inc.). Beth Savage, CPA, in her capacity as the Post-Consummation Trust Administrator of the SL Liquidating Post-Consummation Trust, (hereafter "Administrator") filed a Sixteenth Omnibus Objection to various claims. Claimant sought priority status for his claim, while the Administrator in her objection opposes such status for Claimant's claim. While Claimant filed three proofs of claims each for the amount of $376,139.15, Claimant admits that the claims are duplicative and there is only a single claim for the amount stated.
A pretrial conference was held between counsel for the Administrator and Claimant, pro se. It was agreed there that there was no factual dispute between the parties and it would be appropriate for them to brief the legal issue presented. The Administrator filed a memorandum in support of her objection. Claimant filed a response, and the Administrator filed a reply. I. Jurisdiction.
This court has jurisdiction of this matter pursuant to 28 U.S.C. § 1334(b) and the General Order of Reference entered in this district. This is a core proceeding arising under 28 U.S.C. § 157. II. Facts.
Claimant had been an employee of Senco Products Inc., but retired March 31, 2008. The present bankruptcy cases, which are being jointly administered, were filed May 8, 2009. Funds were deposited by Claimant's employer annually during each of the last three years before his retirement. These funds were deposited in a "rabbi" trust fund as a deferred compensation plan.
A "rabbi trust" is an irrevocable trust for deferred compensation. In re Bill Heard Enterprises, 419 B.R. 858, 864 (Bankr. N.D. Ala. 2009). The employee does not have to pay tax on the initial payments to a rabbi trust, and any income generated by a rabbi trust is taxable to the employer rather than to the employee. Goodman v. Resolution Trust Corporation, 7 F.3d 1123, 1125 (4th Cir. 1993). The tax attributes of a rabbi trust are favorable to the employee because he or she is not subject to tax on the deferred compensation "until he or she actually receives the deferred amount because the employee [may] never receives the money if the company becomes insolvent." In re Bill Heard Enterprises, supra, at p. 864.
Claimant by the terms of the instrument creating the rabbi trust was to be paid in five equal annual payments starting before the end of April 2008. In years two through five the annual payment was to be made by the end of April in each year. The first payment was in fact made to Claimant, but subsequent payments were not. The second payment, amounting to $90,500.00 was to be paid to Claimant before the end of April 2009, which was prior to the bankruptcy filing. In the course of his briefing, Claimant makes it clear that it is the second payment of $90,500.00 that he believes to be entitled to priority status. This is in contrast to his proof of claim, which states that all $376,139.15 is entitled to priority status. See doc. 1151, ex. A, p.1. The Administrator does not dispute a liability to Claimant pursuant to the terms of the rabbi trust, but contends that Claimant is entitled to the status only of an unsecured creditor for any of the payments due under that agreement.
DISCUSSION
Claimant seeks priority status for at least part of his claim. The Bankruptcy Code in 11 U.S.C. § 507 provides which claims are entitled to priority status (other than, of course, the claims of secured creditors). In order to succeed in his assertion that he is entitled to priority status, Claimant must show that he is entitled by the provisions of § 507 to that status. The only provision in § 507 which might here be deemed relevant is § 507(a)(5) which provides:
11 U.S.C. § 507 Priorities
Thus, claims arising under this provision must come "from services rendered within 180 days before the date of the filing of the petition." It is undisputed that Claimant retired from his employment with the Senco Products Inc. March 31, 2008, well prior to the 180 day period preceding the filing date of May 8, 2009. Moreover, Claimant in his brief states that his claim "is not a contribution to an employee benefit plan . . . ." See doc. 1165, p.1.
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Fifth, allowed unsecured claims for contributions to an employee benefit plan–(A) arising from services rendered within 180 days before the date of the filing of the petition or the date of the cessation of the debtor's business, whichever occurs first . . . .
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While the Court finds the foregoing to be dispositive of the claim of the claimant, we refer to the terms of the rabbi trust that held Claimant's deferred compensation. To the extent Claimant's position is that the funds at issue are not property of the estate by virtue of having been held in this trust, the Court refers to the terms of the Rabbi Trust Agreement that was attached to Claimant's proof of claim:
Section 1 Establishment of Trust
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(d) . . . Any assets held by the Trust will be subject to the claims of the Company's general creditors under federal and state law in the event of Insolvency . . . .
See doc. 1151, ex. A, p. 22.
The Court therefore must conclude that there is no basis in the priorities scheme of the Bankruptcy Code which would entitle Claimant to priority status for any part of his claim.
CONCLUSION
The Court holds that no part of Claimant Morrison's claim is entitled to priority status. His claim will be dealt with as an unsecured claim.
SO ORDERED.
Copies to:
Default List
Kenneth E. Morrison
953 View Drive
Cincinnati, OH 45245-1149
Suzanne S. Whisler
Ice Miller LLP
250 West Street
Columbus, OH 43215