Petition for Writ of Certiorari — Adventure Resources, Inc. v. Holland, 119 S. Ct. 404 (1998) (No. 98-173)
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In The
Supreme Court of the United States
October Term, 1997
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ADVENTURE RESOURCES, INC.,
Petitioner,
MICHAEL H. HOLLAND, MARTY D. HUDSON,
ELLIOTT A. SEGAL, PAUL R. DEAN,
Trustees of the UMWA 1950 Pension Trust
And the UMWA 1974 Pension Trust, et al.,
Respondents.
+
On Petition For A Writ Of Certiorari
To The United States Court Of Appeals
For The Fourth Circuit
4
PETITION FOR A WRIT OF CERTIORARI
¢
JOHN A. RO.ins
Counsel of Record
Lewis, FRIEDBERG, GLASSER,
Casey & Routins, LLP
Suite 700, One Valley Square
Charleston, WV 25301
(304) 345-2000
Attorney for Petitioner
COCKLE LAW BRIEF PRINTING CO., (800) 225-6964
OR CALL COLLECT (402) 342-2831
QUESTIONS PRESENTED
Adventure Resources, Inc. owed pre-bankruptcy con-
tributions to union pension funds and did not assume or
reject its collective bargaining agreement with the union
during its Chapter 11 bankruptcy case. The question pre-
sented is:
Whether the pre-bankruptcy obligations due under
an unrejected and unassumed collective bargaining
agreement are entitled to first priority, administrative
claim status over the pre-bankruptcy claims of non-union
employees and other creditors under the provisions of 11
U.S.C. §§ 365, 1113.
ii
LIST OF PARTIES
In addition to the parties listed in the caption, the
following were parties in the court of appeals: Amigo
Smokeless Coal Company; Tommy Creek Coal Company;
Green Mountain Energy, Incorporated; M.A.E. Services,
Incorporated; Maben Energy Corporation; Raleigh Leas-
ing Incorporated; Stony Coal Company; Spruce Laurel
Coal Company; Hawley Coal Mining Corporation; Bick-
ford Mining, Incorporated; Barrett Fuel Corporation; East
Gulf Fuel Corporation; Coal-X Equipment & Supply Com-
pany, Incorporated; Beckley Repair & Hydraulic Service
Incorporated; Half-Way, Incorporated; Chesapeake Leas-
ing, Incorporated; Piney Fuel Corporation; Lakeside
Leasing, Incorporated; Raleigh Services, Incorporated;
Atlas Leasing Incorporated; Sugar Camp Mining Incorpo-
rated; HD Enterprises, Limited; Jet Coal Services, Incor-
porated; Microblack, Incorporated; Dover Coal Sales,
Incorporated; No. 10 Mining, Incorporated; Panther Red
Ash Land Company, Incorporated; United Mine Workers
of America 1974 Pension Trust; United Mine Workers of
America 1950 Pension Trust; Michael H. Holland, Marty
D. Hudson, Elliott A. Segal, Thomas O. S. Rand, Cariton
R. Sickles, Gail R. Wilensky, William P. Hobgood, Trustees
of the United Mine Workers of America Combined Bene-
fit Fund; United Mine Workers of America Combined
Fund; Michael H. Holland, Marty D. Hudson, Thomas
Connors and Robert D. Wallace, Trustees of the UMWA
1992 Benefit Plan; United Mine Workers of America 1992
Benefit Plan; Michael H. Holland, Marty D. Hudson,
Thomas F. Connors, Elliott A. Segal, Trustees of the
UMWA 1993 Benefit Plan; and Michael H. Holland, Marty
iii
LIST OF PARTIES — Continued
D. Hudson, Elliott A. Segal, Joseph J. Stahl, II, Trustees of
the UMWA Cash Deferred Savings Plan of 1988. All-par-
ent and subsidiary companies of Petitioner, Adventure
Resources, Inc. and of the parties below are included in
the foregoing list of parties.
iv
TABLE OF CONTENTS
Page
CIRO LIS PIM U oo cheb cedcicsivantvivenss i
Se Ee Ps poe atains 205k tnd ees RT SA TEER ii
TAREE CP AU TEIEREED oo obec dcesccnsesccustanes vi
fy 8 8 Tk rrr ee trey ere rr 1
pias esas 2 | MANES SERE hpe ey DU See ee eer prey or 1
STATUTORY PROVISIONS INVOLVED............. 2
STATEMENT OF THB CARB oo ocii ik dee ec cceciees oe
REASONS FOR GRANTING THE WRIT ........... 4
I. THE COURT OF APPEALS’ DECISION CRE-
ATES AN IMPLIED ADMINISTRATIVE CLAIM
TO FAVOR LABOR AGREEMENT CREDITORS
THAT ALTERS STATUTORY CLAIM PRIORI-
Il. THE STATUTORY INTERPRETATION OF THE
COURT OF APPEALS CONFLICTS WITH THE
MORE REASONED POSITION OF THE OTHER
CPR EOE ss Hines beads cen Wepre ee ae hae ee bens 8
Ill. THE PLAIN PROVISIONS OF THE BANK-
RUPTCY CODE WERE MISINTERPRETED BY
THE COURT OF APPEALS . ooscce cescscaceses 13
IV. THE FINDING OF THE COURT OF APPEALS
WILL UNDERMINE REORGANIZING
EMPLOYERS AND FAVOR UNION OVER
NONUNION EMPLOYEES ...............--+-. 18
he | we OS 8 | Be se error mary F 20
ee on
Vv
TABLE OF CONTENTS - Continued
APPENDIX
Adventure Resources, Inc., et al. v. Michael H.
Holland, et al., 137 F.3d 786 (4th Cir. 1998)....
Adventure Resources, Inc. v. Michael H. Holland,
i199 Gu: 707 (5.0. W.Va: 1997) «oo. 6. ices icc
Order on Petition for Rehearing and Suggestion
caw coercion BR SERIO ae
Bankruptcy Code Provisions — Sections 1113, 365,
PG SE oa SSA Orde oo OLAS os 386 ues od ce ek cmek
Page
vi
TABLE OF AUTHORITIES
Page
CASES
Airline-Pilots’ Ass'n Int'l v. Shugrue (In re Ionosphere
Clubs, Inc.), 22 F.3d 403 (2nd Cir. 1994)
0 0 50 0:4 de ood bin OR ea a RD Oa ee 4, 5, 9, 11, 12, 14
Eagle, Inc. v. Local 537 of United Ass'n of Journeymen
and Apprentices of Plumbing and Pipe Fitting
Indus. of U.S. and Canada, AFL-CIO, 198 B.R. 637
CED REN SE eA aia ee Oa Raa Ree Ba SW hes es 11
In re Arlene’s Sportswear, Inc., 140 B.R. 25 (Bankr.
LP. WON, Fe oo 5a 0b 6 60k WR CESK Oo Cea ee cea 11
In re Armstrong Store Fixtures Corp., 135 B.R. 18,
reconsideration denied, 139 B.R. 347 (Bankr. W.D.
ge 2 Pee OE I Een ee Prey eee 10
In re Moline Corp., 144 B.R. 75 (Bankr. E.D. IIl.
1992); 5553 Ek AEW GELS S DEEP REERE SR Mbn est b44r ks 17
In re Ohio Corrugating Co., 115 B.R. 572, 578 (Bankr.
N.D. Ohio 1990), rev'd, United Steelworkers of
America, AFL-CIO v. Ohio Corrugating Co., No. 4:
90CV0810, 1991 WL 213850 (N.D. Ohio 1991) ..... 19
In re Roth American, Inc., 975 F.2d 949 (3rd Cir.
International Union v. Acorn Building Components,
Inc. (In re Acorn Bldg. Components, Inc.) 170 B.R.
S17. (ETD. Fa SRG 5 hes iain ekg we re a 11
Jones Truck Lines, Inc. v. Central States, Southeast
and Southwest Areas Pension Fund (In re Jones
Truck Lines, Inc.), 166 B.R. 885 (Bankr. W.D. Ark.
1994). 6:0s:5i6ss cis ca ep heeeeCa ee Fe 8 ao 10
‘ordan v. Rayman, Martin & Fader, Inc. (In re Ray-
man, Martin & Fader, Inc.), 170 B.R. 286 (D. Md.
DGS) «oa avs cp eee Cae en nk b Ons 48 Ce ees uaa bass 10
Vii
TABLE OF AUTHORITIES - Continued
Page
Mass. Air Conditioning & Heating Corp. v. McCoy,
are Ou Coe CEP. BEROR. I9DG). wos cc cecsvieaswecse 16, 17
Metropolitan Distribution Services, Inc. v. Local 153
OPEIU (In re Golden Distributors, Ltd.), 152 B.R.
35 (S.D.N.Y. 1992) (Bankr. D. Mass. 1992)......... 11
Nathanson v. NLRB, 344 U.S. 25 (1952) ............... 6
NLRB v. Bildisco & Bildisco, 465 U.S. 513 (1984)... 5, 8, 15
Nostas Associates v. Costich (In re Klein Sleep Prod-
uete, int.), ve Food 18 (2nd Cir, 1996)... .. 2.6.5... 18
Shipwrights, Joiners and Caulkers Local 2071 of the
‘United Brotherhood of Carpenters v. Uniflite, Inc.
(In re Murray Industries, Inc.), 110 B.R. 585
(Bankr. M.D. Fla. 1990), appeal vacated as moot,
PO Te BO COR As CUMS EPPAD oes ec civsacceseecece 10
Trustees of Amalgamated Ins. Fund v. McFarlin’s,
ic.; For Rad 98 (2nd Cit. 1986) .. oe. 5. ccc veces 6
United States v. Noland, 116 S.Ct. 1524 (1996) ......... 7
United States v. Ron Pair Enters., Inc., 489 U.S. 235
SIRES AEE TANS SAS ag eR SS oe Re a ae 7
United Steelworkers of America v. Unimet Corp. (In re
Unimet Corp.), 842 F.2d 879 (6th Cir.), cert.
denied, 488 U.S. 828 (1988)........ 6S, 40, 11, 12, 16
STATUTES
Be NE Reka naw h bis sy eehek v84 454k ys bees passim
Ser eee OP PET 0 bbe) Gh ws oes A wees nance 8, 14, 15, 18
Pe: Ae OLED os Wes CEN SS ee Sead de oscncceccks 15
Vili
TABLE OF AUTHORITIES — Continued
Page
AE TIGA B BGIS) kc kina xin kh see cen sea eee tees 15
SiS St 8 phe wees cy ee Dg ee a partie 2, 10
AE WK. Be aac ein Ga Se ee cae eees 7,9
ES USA Pas is wh sk sho ees 2, 3,.6, 8, 13,14
RE EIAs rad a ns shoeing ds ous edeweh si eannes 7, 13
1i USA. § SraNS) and (4). «2.65 veces 9, 14, 19, 20
ES MRA BS TEs cis s sais bi onc ks cadadeni passim
Rh. Shs HS RR ces ts wcaeh seh pbc die ees 4, 5, 8, 11
RORY cam Es) RE er ee eae mre iy ay Pee 3, 10
MISCELLANEOUS
Priority of Claims under Unmodified Collective
Bargaining Agreements, 16 Am. Bankr. Inst. J.
Oe TT ns Ok bs Ge ke 0 Cee Ae ER aa ee ne wes 4
PETITION FOR A WRIT OF CERTIORARI
Adventure Resources, Inc. (“Adventure”), by its
bankruptcy trustee, H. Lynden Graham (“Trustee”).
respectfully petitions that a Writ of Certiorari be issued to
review the judgment of the United States Court of
Appeals for the Fourth Circuit entered February 27, 1998,
in order to resolve the conflict between the Second, Third,
Fourth and Sixth Circuit Courts of Appeal on the impor-
tant issue presented herein.
S
OPINIONS BELOW
The opinion of the court of appeals (App. 1) is
reported at 137 F.3d 786. The opinion of the district court
is reported at 193 B.R. 787 (App. 31).
2
JURISDICTION
The judgment of the court of appeals was entered on
February 27, 1998. A petition for rehearing and sugges-
tion for rehearing en banc was denied on April 24, 1998.
App. 55. Pursuant to Supreme Court Rule 13.1, this peti-
tion has been filed within 90 days of the denial of rehear-
ing.
The jurisdiction of this Court is envoked pursuant to
28 U.S.C. § 1254(1).
STATUTORY PROVISIONS INVOLVED
The provisions of the Bankruptcy Code involved are
11 U.S.C. §§ 365, 503, 507, 1113, which are reproduced in
Appendix 61-89.
STATEMENT OF THE CASE
Adventure and its related companies were parties to
a coilective bargaining agreement with the United Mine
Workers of America (“UMWA”). In December 1992,
Adventure filed a chapter 11 bankruptcy proceeding in
the United States Bankruptcy Court for the Southern
District of West Virginia. During the bankruptcy proceed-
ing, the term of the agreement expired. After expiration
of the agreement in 1993, the UMWA and Adventure
entered into a new collective bargaining agreement. At no
time did Adventure either assume or reject the agree-
ments pursuant to the Bankruptcy Code.
The Adventure reorganization was unsuccessful and
its bankruptcy case was converted to a chapter 7 proceed-
ing. The chapter 7 Trustee for Adventure is now faced
with over $12 million in pre-bankruptcy claims of the
UMWA Health and Retirement Funds (“UMWA Funds”)
arising under the agreements. These claims arose entirely
in the years prior to Adventure’s bankruptcy proceeding
and represent claims for unpaid pension contributions.
During the reorganization proceedings, Adventure
filed an adversary proceeding in the bankruptcy court
seeking a determination of the priority of claims filed by
the UMWA Funds. The district court withdrew reference
ae ON et Wi a pees SY ARUN it Ree N EN BER ie RAE OREO
IE Wie hee ae Spc he SMe” SM BPN RRC ate CORE
NN iin Ac Se as be AB
Pr alle aie.
of the proceeding to decide the issues presented. The
UMWA Funds argued before the district court below that
these pre-petition claims were conferred first priority,
administrative claim status in Adventure’s chapter 11
case under the provisions of Sections 1113 and 1114 of the
Bankruptcy Code. On March 8, 1996 the district court
issued an opinion which rejected that argument and
determined that only post-petition pension contribution
claims were entitled to administrative claim status.! App.
31.
The court of appeals reversed and held that the com-
bined applications of Sections 365 and 1113 of the Bank-
ruptcy Code did provide for administrative claim status
of the pre-petition claims under Section 507. This conclu-
sion was based upon the court of appeal’s view that
Adventure’s failure to reject its pre-petition labor agree-
ment under Section 1113 was tantamount to assuming the
agreement under Section 365. The UMWA Funds’ pension
claims were deemed by the court of appeals to be ele-
vated to administrative status due to the implied assump-
tion of the agreement. The court of appeals did not
reconcile its view with contrary authority or the provi-
sions of Section 365 that only allow bankruptcy debtors to
assume agreements based upon an affirmative request
that is approved by the bankruptcy court.
1 In the post-petition labor agreement entered into by the
UMWA and Adventure in 1993, the parties agreed that the entry
into the agreement would not affect the priority of any claim at
issue in the pending adversary proceeding before the district
court.
Adventure’s petition for rehearing and suggestion for
rehearing en banc were denied.
¢
REASONS FOR GRANTING THE WRIT
The decision of the Fourth Circuit Court of Appeals
is in direct conflict with the opinions of the Second and
Third Cireuits of Appeal in Airline-Pilots’ Ass’n Int'l v.
Shugrue (In re Ionosphere Clubs, Inc.), 22 F.3d 403 (2nd Cir.
1994) and In re Roth American, Inc., 975 F.2d 949 (3rd Cir.
1992). The court of appeals’ decision is consistent with
the Sixth Circuit’s decision in United Steelworkers of Amer-
ica v. Unimet Corp. (In re Unimet Corp.), 842 F.2d 879 (6th
Cir.), cert. denied, 488 U.S. 828 (1988). “To date, the 2nd,
3rd and 6th Circuits have issued opinions interpreting
§ 1113(f) differently”. Priority of Claims Under Unmodified
Collective Bargaining Agreements, 16 Am. Bankr. Inst. J. 36
(1997).-Such a-conflict of the circuits must be resolved to
allow a uniform treatment of claims in bankruptcy cases.
The Second and Third Circuit cases both involved
pre-petition claims under unrejected collective bargaining
agreements. These decisions concluded that, in enacting
Section 1113 to establish procedures for the rejection of
collective bargaining agreements, Congress did not
intend to establish a claim priority for claims under the
agreements. Based upon this finding, the Roth and Iono-
sphere courts found that Section 1113 does not create an
administrative claim priority for pre-petition claims.
In contrast to the approaches in Roth and Ionosphere,
the court of appeals in Adventure granted administrative
claim status to the UMWA Funds’ pre-petition claims
based upon Adventure’s presumed assumption of its
labor agreement. While citing with approval the prece-
dent from the Second and Third Circuits, the Adventure
decision reached the opposite result under the same facts.
The articulated difference in Adventure was the Fourth
Circuit’s conclusion that Section 1113 must be read in
conjunction with Section 365. Section 365 has been ii.ter-
preted by this Court, in an opinion issued prior to the
enactment of Section 1113, to provide that the assumption
of any executory contract results in pre-petition claims
being elevated to first priority, administrative status.
NLRB v. Bildisco & Bildisco, 465 U.S. 513 (1984).
The determination in Adventure that pre-petition
claims under unrejected collective bargaining agreements
are entitled to administrative status was the same result
reached by the Sixth Circuit in Unimet. Based on different
applications of the Bankruptcy Code, Unimet and Adven-
ture both granted payment priorities to pre-petition labor
claims out of concern that there must be enforcement of
the provisions of Section 1113(f) requiring debtors not to
breach collective bargaining agreements without court
approval.
The Roth and Ionosphere decisions present a more
reasoned approach. They recognize that the priority of a
bankruptcy claim may not be implied and can only be
established by specific congressional enactment. In con-
trast, Adventure and Unimet imply a claim treatment
where none is specifically provided by statute. The result
of this implied claim treatment is that pre-petition claims
of non-union employees, taxing authorities and trade
creditors are less likely to be paid than the pre-petition
claims of union employees and pension plans.
The analysis of the provisions of Section 1113 and
other provisions differ in the decisions of the four courts
of appeal so as to create a conflict between them which is
clear and irreconcilable. Certiorari is appropriate.
I. THE COURT OF APPEALS’ DECISION CREATES
AN IMPLIED ADMINISTRATIVE CLAIM TO
FAVOR LABOR AGREEMENT CREDITORS THAT
ALTERS STATUTORY CLAIM PRIORITIES.
The ultimate issue presented in Adventure was
whether pre-petition claims of the UMWA Funds may be
moved to the head of the line for bankruptcy payment by
being deemed administrative claims. Priorities for claim
distribution are provided in Section 507 of the Bank-
ruptcy Code. This priority schedule is designed to pro-
vide payment of certain classes of claims by requiring
that they be paid first before others are satisfied.
“Because the presumption in bankruptcy cases is that the
debtor’s limited resources will be equally distributed
among its creditors, statutory priorities are narrowly con-
strued”. Trustees of the Amalgamated Ins. Fund v.
McFarlin’s, Inc., 789 F.2d 98, 100 (2nd Cir. 1986) (citing
Joint Indus. Board v. U.S., 391 U.S. 224, 228 (1968)). “[I]f
one claimant is to be preferred over others, the purpose
should be clear from the statute”. Nathanson v. NLRB, 344
U.S. 25, 29 (1952).
Under the provisions of the Bankruptcy Code, an
administrative claim is normally for “actual, necessary
costs and expenses of preserving the estate, including
wages, salaries or commissions for services rendered
after the commencement of the case”. 11 U.S.C.
a eS i oi ITS Lod
Bs ech nis AE DLE. | is ERE RIN DEMERS AIOE STE,
§ 503(b)(1)(A). Accordingly, this preferred treatment is
normally reserved for claims which arise post-petition.
Such administrative claims have first priority in the pay-
ment of unsecured claims under Section 507(a)(1). The
other priorities established under Section 507(a)(2)-(8) are
for specified, pre-petition claims which are granted a
payment priority below that provided for administrative
claims.
While the court of appeals in Adventure implied a
claim priority for pre-petition claims of union employees
and pension funds, where no rejection of their collective
bargaining agreement occurs, there is no provision in the
Bankruptcy Code that provides for such treatment. The
court of appeal’s finding was instead based upon the
assumption that a failure to reject a collective bargaining
agreement under Section 1113 is an implied assumption
of that agreement under Section 365. In reaching this
result, the court of appeals ignored the provisions of
Section 365 that provide that agreements may only be
assumed by an affirmative assumption by the debtor
upon approval by the bankruptcy court. The novel con-
struction of the statutes in Adventure to create a new
administrative claim contradicts this Court’s direction
that courts must give effect to the Bankruptcy Code and
catrinot make policy decisions to alter Congress’ intent.
United States v. Noland, 116 S.Ct. 1524, 1527-28 (1996);
United States v. Ron Pair Enters., Inc., 489 U.S. 235, 241
(1989).
II. THE STATUTORY INTERPRETATION OF THE
COURT OF APPEALS CONFLICTS WITH THE
MORE REASONED POSITION OF THE OTHER
CIRCUITS.
A consideration of the analysis of the court of
appeals in Adventure reveals an erroneous interpretation
of Sections 365, 507 and 1113 that is at odds with prior
authority. This consideration begins with the provisions
of Section 1113 which provide that a bankruptcy debtor
may only modify or reject a collective bargaining agree-
ment under certain defined procedures that must be
reviewed and approved by the bankruptcy court. Until
any court approved rejection or modification, the debtor
is directed by the statute to not alter or breach the terms
of the agreement. 11 U.S.C. § 1113(f).
Section 1113 was enacted under the 1984 amend-
ments to the Bankruptcy Code to protect collective bar-
gaining employees from arbitrary use of the provisions of
Section 365(a). Section 365(a) provides that a debtor may,
with court approval, either assume or reject any execu-
tory contract. 11 U.S.C. § 365(a). Until the passage of
Section 1113, Section 365 had been applied to collective
bargaining agreements. NLRB v. Bildisco & Bildisco, 465
U.S. at 522. The standard under Section 365 for the bank-
ruptcy court to approve a request by a debtor to assume
or reject any contract is whether the requested act is in
the best interest of the bankruptcy estate. Since this stan-
dard provided only limited protection for bargaining
employees, Congress responded to Bildisco by enacting
Section 1113.
After the passage of Section 1113, union employees
and pension plans began to argue that Congress intended
this provision to enhance the bankruptcy payment prior-
ity for wages and benefits defined by a collective bargain-
ing agreement. Since this section provides a debtor shall
not breach or terminate a union agreement until it is
modified or rejected upon approval of the bankruptcy
court, the union claimants argued that failure to reject
such an agreement meant all pre-petition claims of union
employees and benefit plans must be paid. The error in
this position was that Section 1113 states nothing about
claim priority.
Prior to the enactment of Section 1113, both union
and non-union employees and benefit plans already had -
administrative priority for all post-petition wages and
benefits under Section 503(b)(1)(A). Pre-petition wages
and benefits had priority treatment after administrative
claims up to $2,000 per employee.? 11 U.S.C. § 507(a)(3)
and (4). The new issue presented by Section 1113 was
whether the pre-petition wages and benefits of union
employees and retirees could be elevated from their pre-
petition priority under Section 507(a)(3) and (4) to post-
petition, administrative status under Section 503(b), if
their collective bargaining is never rejected.
The Second and Third Circuits expressly rejected this
argument in Roth and Ionosphere based upon the finding
that, in enacting Section 1113, Congress did not intend to
2 The $2,000 per employee limit was increased to $4,000
under the 1994 amendments to the Bankruptcy Code.
10
upset the careful ordering of claim priorities under Sec-
tion 507. This finding has been adopted by a majority of
the recent decisions of the lower courts. E.g., Jordan v.
Rayman, Martin & Fader, Inc. (In re Rayman, Martin & Fader
Inc.), 170 B.R. 286 (D. Md. 1994); Jones Truck Lines, Inc. v.
Central States, Southeast and Southwest Areas Pension Fund
(In re Jones Truck Lines, Inc.), 166 B.R. 885 (Bankr. W.D.
Ark. 1994); In re Armstrong Store Fixtures Corp., 135 B.R.
18, reconsideration denied, 139 B.R. 347 (Bankr. W.D. Pa.
1992). Also, see Shipwrights, Joiners and Caulkers Local 2071
of the United Brotherhood of Carpenters v. Uniflite, Inc. (In re
Murray Industries, Inc.), 110 B.R. 585 (Bankr. M.D. Fla.
1990), appeal vacated as moot, 140 B.R. 298 (M.D. Fla. 1992).
Courts following Roth have distinguished the con-
trary position of the Sixth Circuit’s decision in Unimet. In
Unimet, a bankruptcy debtor sought to reject its collective
bargaining and was denied that authority by the bank-
ruptcy court. The lower courts later denied administra-
tive status to the union retirees’ medical claims upon the
finding that only employees were protected by Section
1113 and that the claims arose pre-petition. In reversing
this decision, the Sixth Circuit determined that retirees
were also protected by Section 1113 and found retirees’
claims were entitled to priority, whether or not they
qualified as Section 503 administrative claims.* 842 F.2d
at 884. In reaching its conclusion, the Sixth Circuit
implied a priority in payment based upon the provisions
3 11 U.S.C. § 1114 was enacted after the Unimet decision to
protect retiree benefit plans. The retiree plans protected by
Section 1114 include health and death benefits, but do not
include pension plans.
11
of Section 1113(f), prohibiting unilateral modification of a
collective bargaining agreement. Despite the limitations
of the Sixth Circuit decision, many lower courts have
interpreted Unimet to support an administrative or super
administrative claim priority for claims under collective
bargaining agreements. E.g., Eagle, Inc. v. Local No. 537 of
United Ass'n of Journeymen and Apprentices of Plumbing and
Pipe Fitting Indus. of U.S. and Canada, AFL-CIO, 198 B.R.
637 (D. Mass 1996); International Union v. Acorn Building
Components, Inc. (In re Acorn Bldg. Components, Inc.), 170
B.R. 317 (E.D. Mich. 1994); Metropolitan Distribution Ser-
vices, Inc. v. Local 153 OPEIU (In re Golden Distributors,
Ltd.), 152 B.R. 35 (S.D. N.Y. 1992); In re Arlene's Sportswear,
Inc., 140 B.R. 25 (Bankr. D. Mass. 1997).
Adventure is at odds with the more recent opinions in
Roth and Ionosphere, but does not explain the difference
nor does it even suggest there is a difference between its
decision and those in the other circuits. On the other
hand, the court of appeals indicated its disapproval of
Unimet, but ultimately reached the same result in Unimet.
Rather than rely on the disapproved analysis of Unimet
under Section 1113(f), the court of appeals in Adventure
created a new rationale under Section 365.
The conflict of the Adventure decision is even more
remarkable when one considers that the facts in Adven-
ture are the same on all relevant points as those in Roth.
In Roth, the employer had filed bankruptcy while it was a
party to a collective bargaining agreement with the Inter-
national Brotherhood of Teamsters. 975 F.2d at 950. Dur-
ing the bankruptcy, the collective bargaining agreement
expired, without the debtor’s assumption or rejection of
12
the agreement. The debtor then entered into a new collec-
tive bargaining agreement which was also not assumed
or rejected. Later, the debtor had to cease operation and
sell off its business in the bankruptcy proceeding, which
gave rise to unpaid claims under both the pre-petition
and post-petition collective bargaining agreements. Id. at
951.
The Roth panel rejected the union argument that ben-
efit claims due under the pre-bankruptcy agreement were
administrative claims based on the theory that the debtor
had assumed the agreement by its failure to reject the
agreement under Section 1113. In rejecting the position
adopted by the Adventure decision, the Second Circuit
stated in Roth:
The Union contends that since Roth American
has not sought to reject the collective bargaining
agreement under Section 1113, Roth American
has “assumed” the collective bargaining agree-
ment by operation of law, and that Roth Ameri-
can thus is bound by all of its terms. We agree
with the Union up to this point. But it simply
does not follow, as the Union contends, that all
claims under unrejected collective bargaining
agreements are entitled to first priority. .. . [W]e
will also conclude that 11 U.S.C. § 1113 does not
create a super priority or automatic first priority
for claims under an unrejected collective bar-
gaining agreement.
975 F.2d at 957-58.
The Roth opinion was later endorsed by the Second
Circuit in Ionosphere as a better reasoned position than
that articulated in Unimet. Ionosphere, 22 F.3d at 407. This
more reasoned position was adopted by the district court
13
below and should have been affirmed by the Fourth
Circuit on appeal.
Ill. THE PLAIN PROVISIONS OF THE BANK-
RUPTCY CODE WERE MISINTERPRETED BY
THE COURT OF APPEALS.
The court of appeals misinterpreted or ignored the
plain language of the Bankruptcy Code. This is reflected
by the strained construction in Adventure attached to the
provisions of Sections 365, 507 and 1113. The Adventure
decision begins by the supportable position that the claim
priorities of Section 507 cannot be upset by implication,
but ends by misinterpreting those priorities.
[a] bankruptcy claim arising from the breach of
a collective bargaining agreement may be
accorded priority status only insofar as it fits
into one of the categories singled out for prefer-
ential treatment in section 5(7. Fortunately for
the Funds, the claims of the Pension Trust are
the proverbial round peg.
App. 25.
The foregoing analysis is irreconcilable with the final
determination in Adventure that the UMWA Funds claims
are administrative claims. Section 507 does not provide
any specific “categories” for administrative claims, but
merely states administrative claims under Section 503
have a payment priority over various categories of pre-
petition claims identified in that section. 1s V.-C.
§ 507(a)(1). The only categories in Section 507 constituting
pegs for collective bargaining agreement claims are the
pre-petition priorities provided for employee wages and
14
benefit funds in Sections 507(a)(3) and (4). While the
UMWA Funds’ claims are pre-petition claims which fit
within the type of claims described in 507(a)(3) and (4),
these provisions do not grant administrative status to
such claims. Instead, these claims are granted a lesser
priority behind administrative claims. Given the conflict
between these provisions and Adventure’s finding of
administrative status of the UMWA Fund claims, it would
appear that the court of appeals erred in construing the
normal application of Section 507.
To further support administrative claim status, the
Adventure court goes on to introduce a new view not
adopted in Roth and related decisions. Adventure con-
cludes that, upon an employer’s failure to reject a collec-
tive bargaining agreement, an employer must be deemed
to have assumed the agreement. The decision then looks
to Section 365 to determine the effect of assumption as
being the duty to pay all claims under the agreement,
including those arising pre-petition. To the extent Section
365 dictates the result in Adventure, it would also be
equally applicable in Roth, Ionosphere and cases with
unrejected collective bargaining agreements with which
Adventure is irreconcilably in conflict. The only seeming
explanation for the discrepancy is that the court of
appeals erred in not accounting for the provisions of
Section 365(a) which require a debtor to affirmatively act
to assume any executory contract.
The court of appeal’s misconstruction of this section
is better understood by viewing the difference between
assumption and rejection of contracts under Section 365
from that provided under Section 1113. Under Section
365, a contract is not deemed assumed simply because it
15
is not rejected. In order to assume a contract under this
section, a debtor must specifically seek and obtain the
bankruptcy court’s approval to assume the contract. 11
U.S.C. § 365(a).
Section 365 does not dictate a specific priority for
pre-petition claims upon the assumption of a contract,
but states that to gain bankruptcy court approval for an
assumption of a contract, all defaults in the contract must
be cured. 11 U.S.C. § 365(b)(1). This provision has been
interpreted to provide that all obligations under an
assumed contract, including those due pre-bankruptcy,
must be paid in full as administrative claims. This Court
noted in Bildisco that:
Should the debtor-in-possession elect to assume
the executory contract, however, it assumes the
contract cum onere (citation omitted) and the
expenses and liabilities incurred may be treated
as adrhinistrative expenses, which are afforded
the highest priority of the debtor’s estate, 11
U.S.C. § 503(b)(1).
Rildisco at 531-532. If the bankruptcy court grants a rejec-
tion of the contract, or under certain circumstances the
contract is not assumed, then it is automatically deemed
rejected and the pre-petition obligations due under the
contract are treated as general, unsecured claims, pur-
suant to 11 U.S.C. § 502(g).
Section 1113(a) provides that a bankruptcy debtor
“may assume or reject a collective bargaining agreement
only in accordance with the provisions of this section”.
While subparagraph (a) of Section 1113 refers to both
assumption and rejection, the balance of the provisions of
this section only deal with how and what a debtor must
16
show to modify or reject a collective bargaining agree-
ment. There is no provision in Section 1113 for how or
what a bankruptcy debtor or trustee must do to assume a
collective bargaining agreement.
The Adventure court interprets the Congressional
omission in Section 1113 of a procedure for the assump-
tion of a collective bargaining agreement to mean that
there is an automatic assumption of a collective bargain-
ing agreement upon the failure to reject the agreement.
This position does not logically harmonize Section 1113
with Section 365. The Trustee submits that the more con-
sistent conclusion is that, to assume a collective bargain-
ing agreement, one would turn to Section 365 to
determine the procedure for assumption, just as the court
of appeals looked to this section to determine the effect of
assumption. The procedure provided by Section 365 is a
court approved request by the debtor for such an
assumption. Without following this procedure, no con-
tract is assumed under Section 365.
No decision since Unimet supports Adventure’s inter-
pretation of Section 1113 as removing the plain require-
ments of Section 365(a) that an express assumption must
be approved by the court. The court of appeals did rely
on the district court’s opinion in Mass. Air Conditioning &
Heating Corp. v. McCoy, 196 B.R. 659, (D. Mass. 1996) for
that proposition. The McCoy court only concluded that
Section 365 continues to apply to collective bargaining
agreements, except where it conflicts with the provisions
of Section 1113. The district court in McCoy did not
determine, as the court of appeals did in Adventure, that
failure to reject a collective bargaining was tantamount to
assuming the agreement under Section 365. Instead, the
17
bankruptcy court in McCoy required the debtor employer
to make a specific election to assume or reject its collec-
tive bargaining agreement. The debtor chose to assume
the agreement and this assumption was approved by the
bankruptcy court. Thus, when the McCoy court found
that the debtor had a duty to pay pre-petition claims
under the assumed agreement, it did so only upon an
express assumption under the provisions of Section 365.
The Adventure decision notes that it does not tread
any new ground in finding that assumption of an execu-
tory contract under Section 365 means pre-petition claims
arising from the contract are to be paid as administrative
claims.* There is no error in the finding of the court of
appeals that assumption of an executory contract results
in pre-petition obligations under the contract being
treated as an administrative expense. The conflict pre-
sented by Adventure is its finding that contract assump-
tion can occur without an affirmative act by the
bankruptcy debtor and approval of that act by the bank-
ruptcy court after notice to creditors.
While the duty of a debtor employer to comply with
the terms of a collective bargaining agreement in post-
4 In all but one of the six decisions cited for this proposition
in the Adventure decision, the debtor affirmatively assumed a
lease under Section 365. See footnote 18, App. 29. A pre-Roth
decision of In re Moline Corp., 144 B.R. 75 (Bankr. E.D. Ill. 1992)
did involve a collective bargaining agreement that had not been
assumed or rejected. During the pendency of the bankruptcy, a
union moved for its claims to be granted administrative claim
status and the bankruptcy court denied that request finding the
debtor had not yet assumed the contract.
18
bankruptcy employment is undisputed, the implied con-
clusion of Adventure that this requirement elevates pre-
petition obligations under the wage agreement to admin-
istrative status, has no support. Under Section 365, var-
ious types of executory contracts are required to be
performed to the extent of post-bankruptcy obligations,
but there is no provision that pre-petition obligations
must be paid uniess and until a court approves the
assumption of the agreement. See e.g., Nostas Associates v.
Costich (In re Klein Sleep Products, Inc.), 78 F.3d 18, 26 (2nd
Cir. 1996).
The Trustee submits that the conflict of Adventure
with the other circuits should be resolved by this Court
determining that a debtor must act to assume a collective
bargaining agreement with bankruptcy court approval
under Section 365 before pre-bankruptcy claims arising
under the agreement are treated as administrative claims.
IV. THE FINDING OF THE COURT OF APPEALS
WILL UNDERMINE REORGANIZING
EMPLOYERS AND FAVOR UNION OVER NON-
UNION EMPLOYEES.
The issues presented in Adventure have a significant
impact on the administration of bankruptcy cases. In a
case where a debtor is successful in reorganizing, the
assumption and payment in full of all collective bargain-
ing obligations seems well founded. The debtor could
seek to assume the agreement under Section 365(a) and
other pre-bankruptcy creditors could participate in a
hearing to protect their interests in the event payment of
19
their claims was adversely affected by such an assump-
tion. On the other hand, when a business in reorganiza-
tion fails, the simple fact that a pre-petition claim is
related to a collective bargaining agreement should not
allow that claim to come ahead of all other pre-petition
creditors based upon a mythical assumption of the agree-
ment. Consumer creditors, taxing authorities and non-
union employees holding pre-petition claims all suffer
under such an inequitable result. While their claims are
elevated in priority under Section 507(a)(3)-(8), the
Adventure decision provides that these claims can only
receive payment, if there are sufficient funds in the bank-
ruptcy to pay the administrative claims of the collective
bargaining employees and plans in full.
As noted by the Third Circuit in Roth, having an
unknown amount of pre-petition obligations automat-
ically becoming equal to new post-petition credit in a
bankruptcy could be detrimental to a reorganization case.
The Roth court stated that “[i]f post-petition administra-
tive expenses can be, in effect, wiped out by pre-petition
employment obligations, a strong disincentive to reorgan-
ization under Chapter 11 would be created”. Roth at 956,
quoting In re Ohio Corrugating Co., 115 B.R. 572, 578
(Bankr. N.D. Ohio 1990). The application of the Adventure
position would hamper the reorganization efforts of
chapter 11 debtors with collective bargaining agreements
since the debtors would be less likely to obtain new
credit.
Adventure creates a further disparity in the treatment
of union and non-union wage and benefit claims. The
pre-petition claims of all employees or their benefit plans
20
for wages or contributions are treated as pre-petition
claims under Section 507(a)(3) or (4) with a payment
priority after administrative claims. On the other hand,
Adventure provides union employees and benefit plans
administrative claims for pre-petition claims ahead of
non-union employees and plans, where there is no court
approved rejection of the collective bargaining agree-
ment. There is no statutory support or rational basis to
suggest that Congress intended to grant such a special
claim priority to union claimants by enacting Sections
1113 to the detriment of other employees and benefit
plans of a bankruptcy debtor. The disparity created by
Adventure should be resolved by the Court following the
plain language of the Bankruptcy Code.
¢
CONCLUSION
The Petition for a Writ of Certiorari should be
granted.
Respectfully submitted,
Joun A. ROo.tins
Lewis, FRIEDBERG, GLASSER,
Casey & Ro.utns, LLP
Suite 700, One Valley Square
Charleston, WV 25301
(304) 345-2000
. Attorney for Petitioner
July 23, 1998
APPENDIX A
APPENDIX
Page
Adventure Resources, Inc., et al. v. Michael H.
Holland, et al., 137 F.3d 786 (4th Cir. 1998)....... Al
Adventure Resources, Inc. v. Michael H. Holland,
EO MMs FOF p COEs. WE. VOs ADEE) vv cscw evens evecees A31
Order on Petition for Rehearing as Suggestion for
a eee er er ee Pee eee eRe Eee A55
Bankruptcy Code Provisions - Sections 1113, 365,
ie Thi a Vida Ciena As wea Ova we deans te bess Aél
Al
APPENDIX
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
ADVENTURE Resources, INCORPORATED, a
West Virginia corporation; Amico
SMOKELESS Coa Company, a West
Virginia corporation; Tommy CREEK
Coat Company, a West Virginia
corporation; GREEN Mountain ENERGY,
INCORPORATED, a West Virginia
corporation; M.A.E. Services,
INCORPORATED, a West Virginia
corporation; Masen ENERGY
CorporaTION, a West Virginia
corporation; RALEIGH LEASING,
INCORPORATED, a West Virginia
corporation; Stoney Coat Company, a
West Virginia corporation; Spruce
Laure. Coat Company, a West
Virginia corporation; Haw.Ley Coat
MINING CorporRATION, a West Virginia
corporation; BickrorD MINING,
INCORPORATED, also knewn as Allports
Coals, Incorporated, a West Virginia
corporation; Barrett Fue.
CorPORATION, successor by merger to
Beckley Lick Run Company, a West
Virginia corporation; East Gutr Fuer
CorporaTION, a West Virginia
corporation; Coat X Equipment &
Suppty COMPANY, INCORPORATED,
formerly known as Lakeside Supply
Company, Incorporated, a West
Virginia corporation; Beck.tey Repair
& Hyprautic Service, INCORPORATED, a
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No. 96-1557
A2
West Virginia corporation; Halfway,
Incorporated, a West Virginia
corporation; CHESAPEAKE LEASING,
INCORPORATED, a West Virginia
corporation; Piney Fuet CORPORATION,
a West Virginia corporation; LAKEsIDE
Leasinc, Incorporated, formerly
known as Airplane Leasing,
Incorporated, a West Virginia
corporation; RALEIGH SERVICES,
INCORPORATED, a West Virginia
corporation; AtLas Coat LEASING,
INCORPORATED, a West Virginia
corporation; SuGAR CAMP MINING,
INCORPORATED, a West Virginia
corporation; H.D. Enterprises, Limiteb,
a West Virginia corporation; Jet Coal
Services, Incorporated, a West
Virginia corporation; Microblack,
Incorporated, a West Virginia
corporation; Dover Coat SALEs,
INCORPORATED, a West Virginia
corporation; No. 10 Minna,
INCORPORATED, a West Virginia
corporation; PANTHER Rep AsH LAND
ComPaANY, INCORPORATED, a West
Virginia corporation,
Plaintiffs-Appellees,
v.
MicHaAe, H. Hoititanp, Marty D.
Hupson, E.tuot A. Seca, Pau R.
Dean, Trustees of the UMWA 1950
Pension Trusts and UMWA 1974
Pension Trusts; UNirep Mine WorKeERS
or AMERICA 1974 PENsION TRUST;
ee ee eee OOO OO OO ae Or”
A3
Unrrep Mine Workers oF AMERICA
1950 Pension Trust; Micuaet H.
Ho.tianp, Marty D. Hupson, ELuiot
A. Secat, THomas O.S. RaNnpb, CARLTON
R. Sicxies, and Gam R. WILENsky,
WituiaM P. Hoscoop, Trustees Of The
United Mine Workers of America
Combined Benefit Fund; Unirrep Mine
Workers OF AMERICA COMBINED FUND;
MicHaet H. Hoiitanp, Marty D.
Hupson, THomMaAs F. Connors and
Rosert D. Wa.tace, Trustees of The
-_UMWA 1992 Benefit Plan; Unrrep
Mine Workers OF AMERICA 1992
Benerir PLAN; MicHAet H. HOLiANp,
Marty D. Hupson, THomas F.
Connors, E.uiot A. Seca, Trustees of
The UMWA 1993 Benefit Plan;
Unitrep Mine Workers OF AMERICA
1993 Benerit PLAN; and Micnaet H.
HoLLANbD, Marty D. Hupson, ELuiot
A. SEGAL, JosePH J. StAHt, II, Trustees
of The UMWA Cash Deferred
Savings Plan of 1988; Unrrep MINE
Workers OF AMERICA CASH DEFERRED
SAVINGS PLAN OF 1988,
Defendants-Appellants,
and
Donna E. SHa.ata, Secretary,
Department of Health & Human
Services, Social Security
Administration of the United States
of America,
Defendant.
er er a a a a a a a a ee eee ie i i aS a eS ws
A4
ADVENTURE RESOURCES, INCORPORATED, a
West Virginia corporation,
Plaintiff-Appellant,
and
Amico SMOKELESS Coat Company, A
West Virginia Corporation; Tommy
Creek Coat Company, A West Virginia
Corporation; GREEN MOuNTAIN ENERGY,
INCORPORATED, a West Virginia
corporation; M.A.E. Services,
INCORPORATED, a West Virginia
corporation; Masen ENERGY
CorporaTION, a West Virginia
Corporation; RALEIGH LEASING,
INCORPORATED, a West Virginia
Corporation; Stoney Coat Company, a
West Virginia corporation; Spruce
Laure. Coat Company, a West
Virginia corporation; HAwLey Coa
MINING Corporation, a West Virginia
corporation; Bickrorp MINING,
INCORPORATED, also known as Allports
Coals, Incorporated, a West Virginia
corporation; Barrett Fuet
CorPORATION, successor by merger to
Beckley Lick Run Company, a West
Virginia corporation; East Gur Furr
CorporaTION, a West Virginia
corporation; Coat X Equipment &
Suppty ComMPANy, INCORPORATED,
formerly known as Lakeside Supply
Company, Incorporated, a West
Virginia corporation; Becktey Repair
& Hyprautic Service, INCORPORATED, a
No. 96-1938
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A5
West Virginia corporation; Hatrway,
INCORPORATED, a West Virginia
corporation; CHesaPeaAkE LEASING,
INCORPORATED, a West Virginia
corporation; Piney Fue. Corporation,
a West Virginia corporation; Laxesipe
LEASING, INCORPORATED, formerly
known as Airplane Leasing,
Incorporated, a West Virginia
corporation; RALEIGH SERviceEs,
INCORPORATED, a West Virginia
corporation; Attas Coat LEasiNG,
INCORPORATED, a West Virginia
corporation; SuGAR Camp MINING,
INCORPORATED, a West Virginia
corporation; H.D. Enterprises, Limirep,
a West Virginia corporation; Jer Coat
SERVICES, INCORPORATED, a West
Virginia corporation; MicrosLack,
INCORPORATED, a West Virginia
corporation; Dover Coat Sates,
INCORPORATED, a West Virginia
corporation; No. 10 Minna,
INCORPORATED, a West Virginia
corporation; PANTHER Rep Ash LAND
Company, INCORPORATED, a West
Virginia corporation,
Plaintiffs,
Vv.
MicHaet H. HoLtanp, Marry D.
Hupson, E.uiot A. Secat, Paut R.
Dean, Trustees of the UMWA 1950
Pension Trusts and UMWA 1974
Pension Trusts; United Mine Workers
of America 1974 Pension Trust;
Unitrep Mine Workers OF AMERICA
et eet et et ee ee Se eet See ee ee See ee Se Ne Se Se See Se Nee Nee Se ee Se Nee ee We Nee ee Nee Net ee Ne ee ee ee es ee
A6
1950 Pension Trust; Micuaew H.
Hottanp, Marty D. Hupson, Evuior
A. Seca, THomas O.S. Ranp, CARLTON
R. Sicxies, and Gan R. Wicensky,
WiuuiamM P. Hoscoop, Trustees of the
United Mine Workers of America
Combined Benefit Fund; Unrrep Mine
Workers oF AMERICA ComBINeD FuND;
Micuaet H. Hoiitanp, Marry D.
Hupson, THomas F. Connors and
Rosert D. Wattace, Trustees of the
UMWA 1992 Benefit Plan; Unirep
Mine Workers or America 1992
Benertit PLAN; MicHaset H. Hoitanp,
Marty D. Hupson, THomas F.
Connors, Etuior A. Seca, Trustees of
the UMWA 1993 Benefit Plan; UNitep
Mine Workers oF AMERICA‘1993
Benerit PLAN; and Micuaet H.
Ho.ttaAnp, Marty D. Hupson, E.uor
A. Secat, JoserH J. Stant, IL, Trustees
of the UMWA Cash Deferred Savings
Plan of 1988; Unirep Mine Workers
or AmeriIcA CasH Dererrep SAVINGS
PLAN oF 1988,
Defendants-Appellees,
and
Donna E. SHALALA, Secretary,
Department of Health & Human
Services, Social Security
Administration of the United States
of America,
Defendant.
ee eee ee”
A7
Appeals from the United States District Court
for the Southern District of West Virginia,
at Charleston.
Charles H. Haden II, Chief District Judge.
(CA-94-858-2, BK-91-50509, AP-93-197)
Argued: August 13, 1997
Decided: February 27, 1998
Before RUSSELL,* Circuit Judge, HALL, Senior Circuit
Judge, and MICHAEL, Senior United States District Judge
for the Western District of Virginia, sitting by designa-
tion.
Affirmed in part, reversed in part, and remanded with
instructions by published opinion. Senior Judge Hall
wrote the opinion, in which Judge Russell and Senior
Judge Michael joined.
COUNSEL
ARGUED: Jami Wintz McKeon, Morgan, Lewis &
Bockius, L.L.P., Philadelphia, PA, for Appellants. John
Allen Rollins, Lewis, Friedberg, Glasser, Casey & Rollins,
Charleston, WV, for Appellees. ON BRIEF: David W.
Allen, Larry D. Newsome, Barbara Locklin-George, Brian
H. Benjet, Office of the General Counsel, UMWA Health
& Retirement Funds, Washington, DC; Marilyn L. Baker,
Mooney, Green, Baker, Gibson & Saindon, P.C., Washing-
ton, DC, for Appellants.
* Judge Russell participated in the decision of this case, but
died prior to the time the opinion was issued. The opinion is
filed by a quorum of the panel pursuant to 28 U.S.C. § 46(d).
A8
OPINION
HALL, Senior Circuit Judge:
The primary question before us in this appeal is
whether a debtor in bankruptcy operating under the
aegis of Chapter 11 may, with regard to an executory
contract in effect at the time of the filing of the petition
for reorganization, continue to reap the benefits of its
bargain without concern that the non-debtor party will be
made whole for the debtor’s unfulfilled prepetition obli-
gations. We hold, in accordance with the pronouncement
of the Supreme Court in NLRB v. Bildisco & Bildisco, that it
may not.
I.
A.
The Adventure Group comprises forty-six com-
panies, all of which are affiliates or subsidiaries of
Adventure Resources, Inc. The Adventure companies are
involved, to varying degrees, in nearly every aspect of
the production of coal. For instance, certain of the com-
panies merely own or lease the mine properties and the
coal beneath them. Other Adventure companies actually
mine and prepare the coal, and still others provide sup-
port services such as supplies and equipment.
In December 1992, twenty of the Adventure com-
panies filed petitions for reorganization under Chapter 11
of the Bankruptcy Code. Among the myriad of Adven-
ture’s creditors were six trusts established to provide
pension, health, disability, and death benefits to members
AY
of the United Mine Workers of America and their depen-
dents. Together, these trusts constitute the UMWA Health
and Retirement Funds (“the Funds”).
Four of the trusts (the 1950 Pension Trust, the 1974
Pension Trust, the Cash Deferred Savings Plan of 1988,
and the 1993 Benefit Plan) were created as the result of
NBCWAs - collective bargaining agreements negotiated
by the UMWA with the Bituminous Coal Operators Asso-
ciation.! The remaining two trusts (the Combined Benefit
Fund and the 1992 Benefit Plan) exist by operation of law;
they were established as a result of the enactment of the
Coal Industry Retiree Health Benefit Act, 26 U.S.C.
§§ 9701-9722 (the “Coal Act”).
Adventure was among the coal operator signatories
to the NBCWA of 1988, the collective bargaining agree-
ment in effect at the time of the bankruptcy filing. Pur-
suant to the 1988 agreement, the employers undertook to
ensure the funding of employee pension and health bene-
fits initially payable during the contract term. In addition,
the employers guaranteed the funding of benefits already
being administered by the 1950 and 1974 Pension Trusts;
those trusts were “incorporated by reference and made a
part of this Agreement.” Nationat Bituminous Coat WAGE
AGREEMENT OF 1988 art. XX, §§ (b), (c)(1).
Adventure did not live up to its part of the bargain.
Instead, as evidenced by the preliminary report of an
1 NBCWA is an abbreviation for “ National Bituminous Coal
Wage Agreement.”
Al0
independent business analysis prepared in 1988, Adven-
ture engaged in a deliberate strategy of expanding its
mining operations at the expense of its employees:
In 1985 and a portion of 1986, the companies
began extensive mine development. . . . [M]ine
development and sustaining capital costs are
not easily financed, and management was faced
with significant cash obligations. Management
felt that expanding vendor credit beyond the
level being used at the time was impossible and
sought other sources of funds. The decision was
made to not make payments, as due, to the
mineworkers pension and benefit funds. . . .
This “funding” mechanism was viewed as short-
term but necessary, and the deferral of these
payments was undertaken.
May 5, 1988, Preliminary Report of David A. Harrah,
CPA, to John P. Lamond, Treasurer, Westmoreland Coal
Co.
Adventure’s “deferral” of its pension and health ben-
efit contributions was anything but short-term. Once it
had initially defaulted on its payments to the Funds,
Adventure continued to remain in arrears. Even after
filing for reorganization, Adventure satisfied neither its
ongoing obligations to the 1950 and 1974 Pension Trusts,
nor those subsequently imposed by the Coal Act and the
1993 NBCWA.? As a result of Adventure’s business
2 To comply with the Coal Act, Adventure was required to
make payments to the Combined Benefit Fund and to the 1992
Benefit Plan (the “Coal Act trusts”). Consistent with the terms of
the 1993 NBCWA, Adventure agreed to contribute to the Cash
Deferred Savings Plan of 1988 and to the 1993 Benefit Plan.
All
“ ‘funding’ mechanism,” the Funds’ claims may exceed
$25 million, including approximately $4-5 million
assessed during the 43-month duration of the Chapter 11
bankruptcy.®
B.
The twenty Adventure companies in Chapter 11,
joined by eight non-debtor affiliates, filed this adversary
proceeding in the bankruptcy court to determine the via-
bility and priority of the claims filed by three of the
trusts. See 28 U.S.C. § 157(b)(1) (conferring jurisdiction
upon the bankruptcy judges over certain “core” bank-
ruptcy proceedings, as outlined in § 157(b)(2)). By order
dated June 23, 1994, the district court, pursuant to its
authority under 28 U.S.C. § 157(d), withdrew its reference
of the proceeding to the bankruptcy court. The remaining
three trusts were subsequently granted leave to intervene
as additional defendants and to file a counter-complaint
against Adventure.
Following a period of discovery, the Funds moved for
partial summary judgment, contending that virtually all
of their claims were entitled to be designated administra-
tive expenses of the bankruptcy estate. See 11 U.S.C.
§ 507(a)(1) (according first priority to “administrative
expenses allowed under section 503(b) of this title”).4 The
* On July 25, 1996, after the notice of appeal was filed in the
instant matter, the bankruptcy court, upon Adventure’s motion,
converted the case to a liquidation proceeding under Chapter 7.
4 Adventure’s creditors have filed over $160 million in
claims relating to its pre-bankruptcy operations. During the oral
Al2
district court, by memorandum opinion and order dated
March 8, 1996, granted the motion as to the claims filed
by the Coal Act trusts. See note 2, supra. However, with
respect to the vast bulk of the Funds’ claims, i.e., the pre-
bankruptcy amounts owed by Adventure to the 1950 and
1974 Pension Trusts, the court below denied the motion.
Adventure Resources, Inc. v. Holland, 193 B.R. 787 (S.D.W.
Va. 1996).5
The district court concluded that the Funds’ claims
pursuant to the Coal Act did not accrue until after the
filing of the Chapter 11 petitions in late 1992. The initial
contributions and benefit premiums exacted by the terms
of the Coal Act are, the district court ruled, taxes on the
bankruptcy estates, and are therefore administrative
expenses within the contemplation of 11 U.S.C.
§ 503(b)(1)(B)(i). 193 B.R. at 793-96.
Regarding Adventure’s obligations to the 1950 and
1974 Pension Trusts, the district court dismissed the
Funds’ arguments that 11 U.S.C. §§ 1113(f) and 1114(e)
(addressing, respectively, the rejection in bankruptcy of
argument of this matter, counsel for the Chapter 7 trustee
surmised that the sale of the estate’s assets will generate only
enough cash to pay the secured claims, the costs of the
liquidation, and an unspecified portion of the expenses
associated with the administration of the Chapter 11
bankruptcy.
5 The parties do not appear to dispute that the claims filed
by the 1993 Benefit Plan and the Cash Deferred Savings Plan of
1988, to the extent that they are attributable to obligations
assumed by Adventure pursuant to its 1993 wage agreement, see
note 2, supra, are entitled to priority as postpetition
administrative expenses of the bankruptcy estates.
Al3
collective bargaining agreements and the payment of cer-
tain health insurance benefits to retired employees of
Chapter 11 debtors) conferred first priority status upon
the entirety of those claims, regardless of whether they
accrued prior to the filing of the petitions. The district
court determined instead that any claims for benefit con-
tributions payable pursuant to an NBCWA were entitled
to administrative expense priority only insofar as they
had initially arisen postpetition. 193 B.R. at 796-98.
The Funds appeal that portion of the district court’s
order denying them summary judgment as to the claims
of the Pension Trusts originating prior to Adventure’s
immersion in bankruptcy. The Chapter 7 trustee cross-
appeals the remainder of the order granting summary
judgment to the Funds on the Coal Act claims; the notice
of crossappeal incorporates the district court’s order of
June 26, 1996, denying Adventure’s post-proceeding
motions for relief under Fed. R. Civ. P. 59(e) and 60(b).
We agree with the district court that the Funds’
claims under the Coal Act did not arise until after Adven-
ture had already filed its petitions for reorganization.
Inasmuch as these claims are for unpaid taxes, they must
be accorded administrative expense priority. Conse-
quently, we affirm the district court’s grant of summary
judgment to the Funds as to the Coal Act claims.
The district court also correctly determined that the
plain language of 11 U.S.C. §§ 1113(f) and 1114(e) does
not accommodate the notion that Congress specifically
intended to address through those statutes the priority of
claims for unpaid pension benefit obligations. In the
absence of specific direction from the legislative branch,
Al4
we conclude that, where such claims emanate from the
breach of a collective bargaining agreement, they are to
be granted priority in accordance with the law governing
the treatment in bankruptcy of executory contracts in
general.
Thus, where the Chapter 11 debtor has assumed the
benefits and obligations of an existing collective bargain-
ing agreement, but does not comply with its statutory
duty to cure all defaults then extant, any claims arising
from the debtor’s failure to cure are entitled to first
priority as administrative expenses of the bankruptcy
estate. Because the district court held to the contrary, i.e.,
that the Funds’ claims are not entitled to any priority to
the extent that they are attributable to prepetition
defaults, we reverse its grant of summary judgment to
Adventure as to the applicable Pension Trust claims. We
will explain the reasons for our holdings in more detail
below.
Il.
The parties agree that no genuine issue of material
fact exists at this stage of the litigation. Our task is simply
to determine, on the undisputed facts, which party is
entitled to judgment as a matter of law concerning the
issues on appeal. Fep. R. Crv. P. 56(c). In that respect, our
review of the district court’s application of the law is, as
always, de novo. Patten v. United States, 116 F.3d 1029, 1031
(4th Cir. 1997).
Congress passed the Coal Act to redress the “looming
insolvency” of the trusts that had been established by
prior NBCWAs to provide health care benefits to retired
coal miners. LTV Steel Co., Inc. v. Shalala (In re Chateaugay
Corp.), 53 F.3d 478, 484-85 (2d Cir. 1995). To that end, the
Act created the Combined Benefit Fund to secure the
continuation of health benefits for those retired miners
who had been receiving them under the old system as of
July 20, 1992. 26 U.S.C. § 9703(f). The Act also devised the
1992 Benefit Plan, which covered two other groups of
miners: (1) those eligible for benefits as of February 1,
1993, and who retired by September 30, 1994; and (2)
those “orphaned” upon the insolvency of an individual
employer benefit plan. § 9712(b).
With regard to both new trusts, the Coal Act assessed
initial, “prefunding” contributions against the coal opera-
tors who had signed the 1988 NBCWA. See §§ 9704(i)
(Combined Fund), 9712(d)(1)(A) (1992 Plan). The Act also
specified that, beginning on February 1, 1993, the affected
operators would pay health benefit premiums to the
trusts, based on the number of beneficiaries assigned to
them by the Social Security Administration. See
§§ 9704(b) (Combined Fund), 9712(d)(1)(B) (1992 Plan).
Lastly, the Act required the operators to pay additional
premiums to the Combined Fund to provide death bene-
fits for their employees and to ensure health coverage for
the industry’s unassigned beneficiaries. § 9704(c), (d).
Al6
B.
Section 503 of the Bankruptcy Code provides for the
payment of expenses incurred in administering the bank-
ruptcy estate. Allowable administrative expenses com-
monly include the direct costs of preserving the estate
(for example, postpetition wages earned by the debtor’s
employees) and compensation for services rendered to
the estate by professionals, such as attorneys and accoun-
tants. See 11 U.S.C. § 503(b)(1)(A), (4). We are more con-
cerned at present, however, with that category of
administrative expenses comprising “any tax . . . incurred
by the estate[.]” § 503(b)(1)(B)(i).© Claims for taxes, like
those for wages, professional fees, and other administra-
tive expenses, are entitled to priority over all other
unsecured claims. § 507(a)(1).
1
1.
The trustee contends that the assessments mandated
by the Coal Act are not “taxes.” The pertinent case
authority is to the contrary. See In re Leckie Smokeless Coal
Co., 99 F.3d 573, 583 (4th Cir. 1996) (Coal Act premiums
are taxes whose validity may be determined in the federal
6 Section 503(b)(1)(B)(i) excepts from its reach “a tax of a
kind specified in section 507(a)(8) of this title.” The latter
provision, in turn, addresses the priority accorded claims of
“governmental units” for, inter alia, certain income, property,
employment, and excise taxes. Regardless of how one might
characterize the Funds’ Coal Act claims within the broader
rubric of “taxes,” the Funds themselves are not governmental
units, and, therefore, their claims are not within the ambit of
§ 507(a)(8). Adventure Resources, 193 B.R. at 795 n. 15. This aspect
of the district court’s ruling has not been challenged on appeal.
Al7
courts notwithstanding the asserted jurisdictional bars of
the Anti-Injunction Act and the Declaratory Judgment
Act), cert. denied, 117 S.Ct. 1251 (1997).
In Leckie, we recognized that Coal Act obligations
“are involuntary pecuniary burdens imposed by Con-
gress for the public purpose of restoring financial stabil-
ity to coal miners’ benefit plans,[”] and those burdens
have been imposed as an exercise of Congress’s taxing
power.” Id., citing Chateaugay at 498.8 There is no doubt,
then, that the assessments meet this circuit’s definition of
a x.”
7 Cf. New Neighborhoods, Inc. v. W. Va. Workers’ Comp. Fund,
886 F.2d 714, 718 (4th Cir. 1989) (“The ‘public’ purpose of
systems such as the [workers’ compensation scheme] in force
and effect in West Virginia is to allocate the burden of the costs
of injured employees and/or their dependents among
employers rather than among the general public.”).
8 The court in Chateaugay was faced with the precise issue
before us. The Second Circuit concluded that Coal Act
assessments are taxes within the meaning of § 503(b)(1)(B)(i),
entitled to administrative expense priority under § 507(a)(1).
9 See United States v. City of Huntington, W. Va., 999 F.2d 71,
73 n. 4 (4th Cir. 1993):
For the purpose of determining claim priority in the
context of bankruptcy, the courts have established the
following elements of a tax: “(a) An involuntary
pecuniary burden, regardless of name, laid upon
individuals or property; (b) Imposed by, or under
authority of the legislature; (c) for public purposes,
including the purpose of defraying expenses of
government of undertakings authorized by it; and (d)
Under the police or taxing power of the state.”
(quoting In re Lorber Industries, 675 F.2d 1062, 1066 (9th Cir.
1982)). :
Al8
2.
Remaining is the question of whether the taxes levied
by the Coal Act were, in the case of the Adventure
companies, “incurred by the estate[s].” The trustee argues
in the negative, pointing out that the Coal Act was signed
into law on October 24, 1992, antedating the filing of the
bankruptcy petitions by more than a month. Under the
terms of the statute, however, no claim could accrue to
the Combined Fund and the 1992 Plan until February 1,
1993, well after the bankruptcy estates had been cre-
ated.10
A “claim” is a “right to payment, whether or not such
right is reduced to judgment, liquidated, unliquidated,
fixed, contingent, matured, unmatured, disputed, undis-
puted, legal, equitable, secured, or unsecured[.]” 11
U.S.C.A. § 101(5)(A) (West 1993). Claims, however, do not
exist in a vacuum; they must be possessed by creditors.
See § 101(10) (“creditor” defined as, inter alia, an “entity
that has a claim against the debtor that arose at the time
of or before the order for relief concerning the debtor”).
10 See 26 U.S.C.A. § 9702(c) (“The first plan year of the
Combined Fund shall begin February i, 1993. ...”) and 26
U.S.C.A. § 9712(b)(2) (“[T]he term ‘eligible beneficiary’ means
an individual who . . . but for the enactment of this chapter,
would be eligible to receive benefits from the 1950 UMWA
Benefit Plan or the 1974 UMWA Benefit Plan, based upon age
and service earned as of February 1, 1993[.]”) (West Supp. 1997);
In re CF & I Fabricators of Utah, Inc., 169 B.R. 984, 987 (D.Utah
1994) (“[S]ection 9702 of the Coal Act establishes the Combined
Fund and merges the UMWA 1950 and 1974 Benefit Plans into
the Combined Fund effective February 1, 1993... . [SJection 9712
of the Coal Act establishes the 1992 Benefit Plan, which also
became effective on February 1, 1993.”).
Al9
Neither the Combined Fund nor the 1992 Plan were
capable of being anyone’s creditor until at least February
1, 1993, the earliest date on which the trusts could have
been entitled to collect their first premiums. See note 10,
supra; 26 U.S.C.A. § 9704(a) (West Supp. 1997) (“Each
assigned operator shall pay to the Combined Fund for
each plan year beginning on or after February 1, 1993, an
annual premium|[.]”). Consequently, the entirety of the
Coal Act claims filed against Adventure by these two
trusts must necessarily have arisen postpetition.!! We
therefore affirm the district court’s determination that
those claims be accorded administrative expense priority
as taxes incurred by the estates.!?
‘1 We speculated in Leckie that a debtor’s liability for future
Coal Act premiums may attach prior to the filing of the
bankruptcy petition, inviting the conclusion that a trust’s
entitlement to such premiums constitutes a prepetition claim. 99
F.3d at 580-81 & n. 9; In re Westmoreland Coal Co., 213 B.R. 1, 12
(Bankr. D.Colo. 1997) (“[T]he Fourth Circuit [in Leckie]
concluded that Coal Act obligations fell within the bankruptcy
definition of a claim and characterized future premium
obligations under § 9712 as unmatured and contingent
rights[.]”). In Leckie, however, none of the eight debtors filed for
bankruptcy prior to February 1, 1993, the date that the trusts’
credi:or status was effectively established. See 99 F.3d at 577 n.
3, 578 n. 6 (first petition filed on April 16, 1993).
‘2 The Funds have argued alternatively that the Coal Act
claims should be accorded first priority status by virtue of 11
U.S.C. § 1114(e), which provides, in pertinent part:
(1) Notwithstanding any other provision of this
title, the debtor in possession, or the trustee . . . shall
timely pay and shall not modify any retiree benefits,
except [by court order after notice and a hearing, or as
the parties may agree]... .
A20
IV.
The final matter on appeal involves the Pension Trust
claims, the lion’s share of which the district court deemed
ineligible for priority status as having initially accrued
prior to the filing of the bankruptcy petitions. The Funds
assert that the district court’s ruling was in error, relying
primarily on 11 U.S.C. §§ 1113 and 1114, enacted by
Congress during the 1980s in response to a perceived
threat to labor stability and to retiree health benefits
posed by the bankruptcy reorganization of numerous
large employers.
A.
Section 1114 simply has no application to the claims
of the Pension Trusts. Although it commands that the
trustee or debtor-in-possession pay “any” retiree benefits
as an administrative expense of the bankruptcy estate, see
§ 1114(e) and note 12 supra, the term “retiree benefits” is
limited to
(2) Any payment for retiree benefits required to
be made before a plan confirmed under section 1129
of this title is effective has the status of an allowed
administrative expense as provided in section 503 of
this title.
(emphases supplied). The trustee contends (and the district
court held) that § 1114(e) applies only to benefit payments due
after the filing of the bankruptcy petition. The Funds respond
forcefully that the word “any” in paragraphs (1) and (2)
encompasses both pre- and postpetition payments. Inasmuch as
we have already decided that all of the Coal Act claims arose
postpetition, we leave for another day the task of ascertaining
the scope of § 1114(e).
A21
payments to any entity or person for the pur-
pose of providing or reimbursing payments for
retired employees and their spouses and depen-
dents, for medical, surgical, or hospital care benefits,
or benefits in the event of sickness, accident, disabil-
ity, or death under any plan, fund, or program
-- . Maintained or established in whole or in part
by the debtor prior to filing a petition commenc-
ing a case under this title.
11 U.S.C.A. § 1114(a) (West 1993) (emphasis supplied).
True to their designations, the Pension Trusts administer
only pension benefits for retired coal miners. None of their
claims are for the types of benefits enumerated in
§ 1114(a).
B.
1.
Section 1113, Ly contrast, affects the treatment of
pension benefits in bankruptcy to the extent that those
benefits exist pursuant to a collective bargaining agree-
ment. The statute provides that a Chapter 11 debtor (or
trustee) may reject a collective bargaining agreement
“only in accordance with the Provisions of this section.”
11 US.C.A. § 1113(a) (West 1993).13 The whole of the
'S If the debtor believes that its obligations under a
collective bargaining agreement would inhibit its effective
reorganization, it must first make a good-faith effort to
negotiate a modification of the contract with its employees’
authorized representative. § 1113(b). In the event of an impasse,
the bankruptcy court may, after notice and a hearing, permit the
debtor to reject the collective bargaining agreement only if (1)
the debtor’s proposed modifications are “necessary to permit
A22
agreement is protected, as are its components: “No provi-
sion of this title shall be construed to permit a trustee to
unilaterally terminate or alter any provisions of a collec-
tive bargaining agreement prior to compliance with the
provisions of this section.” § 1113(f).
The parties acknowledge that, during the course of
its attempted reorganization, Adventure never sought to
reject or modify its labor agreement with the UMWA in
accordance with § 1113; it merely continued to breach its
contractual obligation to pay the premiums due the Pen-
sion Trusts. The Funds maintain that Adventure’s breach,
in essence, unilaterally altered the pension contribution
provision of the 1988 NBCWA, in contravention of
§ 1113(f). According to the Funds, the only means of
giving full force and effect to the statute is to compensate
the Pension Trusts for the breach by granting all of their
claims for unpaid premiums priority in distribution from
the bankruptcy estates.
The Funds’ position finds some support in the hold-
ing of In re Unimet Corp., 842 F.2d 879, 884 (6th Cir. 1988).
In that case, the court of appeals opined that § 1113(f)’s
“unequivocal” prohibition against the modification of
collective bargaining agreements means that a debtor in
Chapter 11 “cannot escape its obligations in [that]
regard.” Id. Unimet was therefore ordered to continué
the reorganization of the debtor and assures that all creditors,
the debtor and all of the affected parties are treated fairly and
equitably”; (2) the employees’ authorized representative has,
without good cause, refused to accept the debtor’s proposal;
and (3) the balance of the equities clearly favors rejection of the
collective bargaining agreement. § 1113(c).
A23
paying health and life insurance premiums on behalf of
its retirees, pursuat to its prepetition agreement with the
steelworkers’ union.
We agree that the language employed by Congress in
§ 1113 is unequivocal, insofar as it goes. It plainly
imposes a legal duty on the debtor to honor the terms of a
collective bargaining agreement, at least until that agree-
inent is properly rejected. By implication, the statute cre-
ates a claim on behalf of the debtor’s employees in the
event that the debtor fails to comply with the law.
Section 1113, however, offers no advice as to how this
new category of claims should be treated vis a vis other
categories competing for payment. The statute’s silence
stands in stark contrast to § 1114, see Section IV-A supra,
which clearly states that “[a]Jny payment for retiree bene-
fits required to be made before a plan confirmed under
section 1129 of this title is effective has the status of an
allowed administrative expense[.]” 11 U.S.C.A.
§ 1114(e)(2) (West 1993).
The Unimet court explicitly declined to decide
whether benefit premiums payable under § 1113 are
administrative expenses, deeming resolution of the issue
immaterial to its conclusion that the premiums had to be
paid. 842 F.2d at 884. To the extent that the Sixth Circuit's
rationale has been followed by the lower courts, a so-
called “superpriority” has attached to claims within the
purview of § 1113. E.g., Eagle, Inc. v. Local No. 537 of
United Ass'n of Journeymen and Apprentices of Plumbing and
Pipe Fitting Indus. of United States and Canada, AFL-CIO,
198 B.R. 637, 638-39 (D.Mass. 1996).
A24
The obvious difficulty with the approach taken in
Unimet and its progeny is that it engenders disharmony
between § 1113 and the carefully ordered hierarchy of
priorities embodied in § 507. “Section 507 is intended to
be the exclusive list of priorities in bankruptcy. Priorities
are to be fixed by Congress. Courts are not free to fashion
their own rules of superpriorities or subpriorities within
any given priority class.” 3 Lawrence P. KINGET ET AL.,
COLLIER ON Bankruptcy { 507.02[2] (15th ed. 1996), cited in
In re Ionosphere Clubs, Inc., 22 F.3d 403, 408 (2d Cir. 1994)
(Ionosphere II).
The Second and Third Circuits have both observed
that, on those infrequent occasions where Congress has
intended to supersede the general priority scheme set
forth in § 507, it has done so explicitly. See Ionosphere II at
408 (citing § 1114(e)(2)’s allowance of claims for retiree
benefits as administrative expenses); In re Roth American,
Inc., 975 F.2d 949, 956 (3d Cir. 1992) (citing § 364(c)(1)’s
authorization for the bankruptcy court to accord “priority
over any ox all administrative expenses of the kind speci-
fied in section 503(b) or 507(b) of this title” to credit
obtained or debt incurred for the purpose of operating
the debtor’s business). As we have noted, explicit instruc-
tion from Congress concerning the priority of claims
under § 1113 is conspicuously absent from the statute.
“[T]here is no indication either from the language or the
legislative history of section 1113 that Congress intended
to address the priority to be given claims based on a
collective bargaining agreement.” Roth American at 956.
A25
We believe that, to the extent possible, Sections 507
and 1113 must be construed harmoniously. It is impera-
tive to the orderly administration of the bankruptcy pro-
cess that § 507 remains, unless otherwise clearly specified
by Congress, the final word on the priorities of compet-
ing claims. We can faithfully adhere to that principle in
this case without doing violence to the legislative pur-
pose inherent in § 1113:
Section 507 only establishes the priority of
[§ 1113] claims[;] it does not affect the underly-
ing obligation. . . . Judicial ordering of benefit
claims pursuant to § 507 is not equivalent ‘to
employer avoidance of obligations under a col-
lective bargaining agreement. The collective bar-
gaining agreement is respected, but the financial
obligations issuing from it are accorded priority
consistent with the Bankruptcy Code.
Ionosphere II at 407 (citation and quotation marks omit-
ted); see Roth American at 957 (“The congressional goal
ernbodied in section 1113 to give special consideration to
a collective bargaining agreement and encourage the
debtor and the union to reach a mutually acceptable
agreement . . . can be satisfied without interfering with
the previously established statutory priorities.”).
ye
We conclude that a bankruptcy claim arising from the
breach of a collective bargaining agreement may be
accorded priority status only insofar as it fits into one of
the categories singled out for preferential treatment in
§ 507. Fortunately for the Funds, the claims of the Pen-
sion Trusts are the proverbial round peg.
A26
i.
We begin with the unremarkable premise that unex-
pired collective bargaining agreements are executory con-
tracts. NLRB v. Bildisco & Bildisco, 465 U.S. 513, 521-22
(1984).!4 Their treatment in bankruptcy is, therefore, gov-
erned generally by 11 U.S.C. § 365, pertaining to execu-
tory contracts and unexpired leases entered into by the
debtor prior to the filing of the bankruptcy petition. Id. at
522-23.
In Bildisco, the Supreme Court held that a debtor
attempting a Chapter 11 reorganization may reject a col-
lective bargaining agreement that “burdens the estate,”
provided that “after careful scrutiny” the equities balance
in favor of rejection. Id. at 525-26; see 11 U.S.C. § 365(a)
(stating that the trustee “may assume or reject any execu-
tory contract or unexpired lease of the debtor”). It was
precisely this holding that inspired Congress’s almost
immediate enactment of § 1113 “to preclude employers
from using bankruptcy law as an offensive weapon in
labor relations by going into bankruptcy and unilaterally
rejecting or modifying the extant collective bargaining
agreement (or exerting leverage at the bargaining table
14 Upon examining the legislative history of the relevant
portion of the Bankruptcy Code, the Supreme Court ascertained
that Congress intended the term “executory contract” to
describe those contracts “on which performance is due to some
extent on both sides.” Bildisco at 522 n. 6 (quoting H.R.Rep. No.
95-595, at 347 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6303).
Collective bargaining agreements typically impose reciprocal
obligations on the employer and the union, on which
performance is due at all times for the duration of the contract.
A27
by threatening to do so).” Roth American at 956 (citation
omitted).
However, in erecting § 1113’s substantive and pro-
cedural obstacles to the unilateral rejection of collective
bargaining agreements, Congress did not indicate that it
intended to otherwise restrict the general application of
§ 365 to those agreements. Section 1113 “governs only the
conditions under which a debtor may modify or reject a
collective bargaining agreement{.]” Id. (quoting In re Ohio
Corrugating Co., 115 B.R. 572, 578 (Bankr. N.D.Ohio 1990),
rev'd,15 United Steelworkers of America, AFL-CIO v. Ohio
Corrugating Co., No. 4:90CV0810, 1991 WL 213850
(N.D.Ohio Jan. 3, 1991)).
Thus, § 365 continues to apply to collective bargain-
ing agreements, except where such an application would
create an irreconcilable conflict with § 1113. Mass. Air
Conditioning & Heating Corp. v. McCoy, 196 B.R. 659, 663
(D.Mass. 1996) (“Section 1113 is designed to provide
additional procedural requirements for rejection or mod-
ification of collective bargaining agreements, and only to
that degree supersedes and supplements the provisions
in § 365.”) (citing Norfolk and Western Ry. Co. v. American
Train Dispatchers Ass'n, 499 U.S. 117, 136 n. 2 (1991)
(Stevens, J., dissenting)). The essential character of collec-
tive bargaining agreements as executory contracts, made
plain in Bildisco, was left undisturbed by Congress.
15 The bankruptcy court’s denial of priority status to the
union’s claims for wages and benefits in Ohio Corrugating was
summarily reversed by the district court as inconsistent with the
Sixth Circuit’s interpretation of § 1113 in Unimet.
A28
ii.
The collective bargaining agreement between the
UMWA and Adventure was assumed in bankruptcy as
the result of the latter’s failure to reject it in accordance
with § 1113. Roth American at 957. Where the debtor-in-
possession assumes an executory contract, “it assumes
the contract cum onere |.|"Bildisco at 531 (citation omit-
ted).1© That the obligations of an executory contract be
accepted along with its benefits is made plain by the
Bankruptcy Code’s requirement that, as conditions of the
contract’s assumption, the debtor cure any existing
default and compensate all non-debtor parties for actual
pecuniary losses that have resulted therefrom. See
§ 365(b)(1).
Upon assumption of the contract, “the expenses and
liabilities incurred may be treated as administrative
expenses, which are afforded the highest priority on the
debtor’s estate.” Bildisco at 532; In re Stewart Foods, Inc.,
64 F.3d 141, 145 (4th Cir. 1995).17 There can be no doubt,
of course, that the statutory duty to cure any existing
default is a “liability” incurred by the debtor by virtue of
its assumption in bankruptcy of an executory contract.
16 “What is taken cum onere is taken subject to an existing
burden or charge.” Biack’s Law Dictionary 342 (5th ed. 1979).
17 If the contract is instead rejected, the resulting damages
(including any prepetition breach) constitute general,
unsecured claims against the estate. Bildisco at 531; see Stewart
Foods at 144-45 (“[R]egardless of the nature of the contract, if at
the time of the bankruptcy filing the debtor has an obligation
under the contract to pay money to the non-debtor party, that
obligation is handled as a pre-petition claim in the bankruptcy
proceedings.”).
A29
Hence, when Adventure assumed the collective bar-
gaining agreement, it undertook a legal obligation to cure
its existing defaults under that agreement, including the
arrears to the Pension Trusts. Adventure’s failure to com-
ply with its legal obligation gave rise, under Bildisco and
Stewart Foods, to an administrative expense claim on
behalf of the Pension Trusts for the entirety of the
arrearage. In effect, Adventure’s postpetition assumption
of its executory labor contract with the UMWA trans-
formed the prepetition claims of the Pension Trusts, once
not cured, into new claims arising postpetition. In re
Mushroom Transp. Co., Inc., 78 B.R. 754, 759 (Bankr. E.D.Pa.
1987).18
18 We tread no new ground in holding that prepetition
defaults of executory contracts and leases assumed in
bankruptcy, left uncured, constitute postpetition administrative
expenses of the estate. A number of learned colleagues and
commentators have blazed that trail before us. See, e.g., LJC
Corp. v. Boyle, 768 F.2d 1489, 1494 n. 6 (D.C. Cir. 1985); Mass. Air
Conditioning & Heating, 196 B.R. at 663; In re Moline Corp., 144
B.R. 75, 79 (Bankr. N.D.Ill. 1992); In re French, 131 B.R. 138, 141
(Bankr. E.D. Mo. 1991); In re Leon’s Casuals Co., Inc., 122 B.R. 768,
771 (Bankr. S.D. Ala. 1990); In re Monroe Well Serv., Inc., 83 B.R.
317, 321 (Bankr. E.D. Pa. 1988); Mushroom, 78 B.R. at 759; 2
Lawrence P. KING ET AL., COLLIER ON BANKruptTcy {J 365.08[1] (15th
ed. 1996) (“[A] trustee must proceed cautiously in electing
whether to assume or reject [an executory contract} since an
assumption will have the effect of making the expenses and
liabilities incurred expenses of administration.”); Jesse M. Fried,
Executory Contracts and Performance Decisions in Bankruptcy, 46
Duxe L.J. 517, 525 (1996):
If the trustee “assumes” the [executory] contract,
Section 365 binds the bankruptcy estate to the
contract, permitting the estate to seek performance
from the other party under the contract’s original
A30
We conclude that the district court erred as a matter
of law by declining to accord administrative expense
priority to the Pension Trust claims insofar as the
arrearage they represent initially accrued prior to the
filing of the bankruptcy petitions. We therefore reverse its
grant of summary judgment to Adventure as to those
claims.
V.
We affirm the district court’s orders of March 8, 1996,
and June 26, 1996, granting summary judgment to the
Funds regarding the priority classification of the Coal Act
claims. We reverse the district court’s order of March 8,
1996, to the extent that it granted summary judgment to
Adventure regarding the priority classification of the
Pension Trust claims. We remand the matter to the district
court with instructions to enter summary judgment for
the Funds as to the Pension Trust claims, according them
administrative expense priority.
AFFIRMED IN PART, REVERSED IN PART, AND
REMANDED WITH INSTRUCTIONS.
terms. [O]bligations in connection with assumed
contracts . .. are treated as postpetition
administration claims. . . . Thus, the effect of
assumption is that the estate acquires all of the
debtor’s rights and obligations under the contract.
A31
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF WEST VIRGINIA
CHARLESTON DIVISION
ADVENTURE RESOURCES, INC., et al.,
Plaintiffs,
Vs. CIVIL ACTION NO. 2:94-0858
MICHAEL H. HOLLAND, et al.,
Defendants.
AND
MICHAEL H. HOLLAND, et al.,
Intervenor Counter-Plaintiff Trusts,
VS.
ADVENTURE RESOURCES, INC., et al.,
Counter-Defendants.
MEMORANDUM OPINION AND ORDER
Pending is the motion for partial summary judgment
of the Defendant/Intervenor Counter-Plaintiffs (the
Funds).! For the reasons set forth below, the Court
GRANTS in part and DENIES in part the Funds’ motion.
! The Funds is a shorthand reference to the UMWA Health
and Retirement Funds. The Funds consists of six trusts: (1) the
UMWA 1950 Pension Trust; (2) the 1974 Pension Trust; (3) the
Cash Deferred Savings Plan of 1988; (4) the UMWA Combined
Benefit Fund (Cembined Fund); (5) the UMWA 1992 Benefit
Plan (1992 Plan); and (6) the UMWA 1993 Benefit Plan. The first
three trusts are referred to collectively as the “Pension Plans.”
bd
A32
I. INTRODUCTION
The substance of this adversary proceeding raises
complicated issues under the Coal Act, the Bankruptcy
Code and the parties’ collective bargaining agreements.
Accordingly, it is helpful to provide some background on
these statutes and contracts.
An exhaustive treatment of the Coal Act is unneces-
sary. The Act’s details and the history leading to its
enactment can be found elsewhere. See, e.g., Carbon Fuel
Co. v. USX Corp., 891 F. Supp. 1186, 1189-92 (S.D. W. Va.
1995) (Haden, C.J.), appeal pending, No. 95-2496 (4th Cir.
Aug. 9, 1995). Only a general outline of the Coal Act is
necessary to provide a frame of reference for some of the
arguments asserted by the Funds.
The Coal Act was enacted on October 24, 1992 and
became effective February 1, 1993. In re Chateaugay Corp.,
53 F.3d 478, 486 (2d Cir.), cert. denied, 116 S. Ct. 298 (1995).
The Coal Act contains three mechanisms for the provision
of health care benefits to retired miners. First, the Act
continues the Individual Employer Plans (IEPs) created
The Pension Plans were established under a series of
National Bituminous Coal Wage Agreements (NBCWAs) to
provide pensions, retirement savings opportunities and death
benefits to retired coal miners and their surviving spouses. The
Combined Fund and the 1992 Plan were established in
accordance with the Coal Industry Retiree Health Benefit Act of
1992 (the “Coal Act” or the “Act”), 26 U.S.C. §§ 9701 et seq. to
provide retiree health benefits to two specific sets of
beneficiaries. The 1993 Benefit Plan was established by the most
recent NBCWA and provides retiree health benefits to a third set
of beneficiaries under separate eligibility rules.
A33
pursuant to the 1978 NBCWA and maintained by the
successor NBCWAs.? See 26 U.S.C. § 9711(a).
The other two mechanisms are the Combined Fund
and the 1992 Plan, which are financed in large part
through per beneficiary premiums payable by companies
to whom responsibility is attributed for individual bene-
ficiaries of those plans. See 26 U.S.C. §§ 9702(a)(1),
9722(a}(1), 9704(b)(2), 9712(d)(1)(B). Each of these alterna-
tive multiemployer plans is discussed in more detail
below.
The Combined Fund covers, beneficiaries eligible tor
and receiving benefits from the UMWA 1974 Benefit Plan
and the 1950 Benefit Plan as of July 20, 1992. 26 U.S.C.
§ 9703(e). These separate plans were merged into the
Combined Fund effective February 1, 1993. 26 U.S.C.
§§ 9702(a)(2). The Combined Fund is authorized to collect
claims pre-existing the Act. 26 U.S.C. § 9708. Every coal
operator who signed or otherwise became bound to an
NBCWA at anytime is required to participate in the Com-
bined Fund’s financing. 26 U.S.C. § 9701(b), (c)(1); Davon
Inc. v. Shalala, 75 F.3d 1114, 1117 (7th Cir. 1996). The
premium scheme for the Combined Fund invoives several
2 Carbon Fuel briefly explains the gencsis of the IEP:
In 1978, the UMWA and the BCOA negotiated a -
slightly different NBCWA. The new agreement
partially dismantled the system developed in 1974.
The union and operators agreed to shift from a
centralized multiemployer benefit trust to a
decentralized scheme in which each signatory
operator established and financed its own individual
health benefit delivery plan or. . . “IEP”[.]
Carbon Fuel, 891 F. Supp. at 1190.
A34
coordinated mechanisms. The primary financing of the
Combined Fund comes from per beneficiary premiums
paid by “assigned operators” and their related persons
under § 9704(a), based on the number of beneficiaries
assigned to them by the Secretary of Health and Human
Services according to an assignment process. See generally
26 U.S.C. § 9706. These premiums were to be calculated
“for each plan year beginning on or after February 1,
1993. ...” 26 U.S.C. § 9704(b)(2).
The 1992 Plan is essentially the new “orphan plan.”
The 1992 Plan is required to provide health coverage for
certain individuals who are not receiving benefits from
the Combined Fund or from their last signatory opera-
tor’s § 9711 plan. 26 U.S.C. § 9712(b)(2); see Holland v.
Double G. Coal Co., 898 F. Supp. 351, 354 (S.D. W. Va. 1995)
(stating the 1992 Plan was intended as a “backstop” to the
Combined Fund and the IEP scheme).
3 Section 9712(b)(2) sets forth the reach of coverage for the
1992 Plan in its definition of “eligible beneficiary,” which is
defined as an individual who
(A) but for the enactment of this chapter,
would be eligible to receive benefits from the
1950 UMWA Benefit Plan or the 1974 UMWA
Benefit Plan, based upon age and service earned
as of February 1, 1993; or
(B) with respect to whom coverage is
required to be provided under section 9711, but
who does not receive such coverage from the
applicable last signatory operator or any related
person,
and any individual who is eligible for benefits by
reason of a relationship to an individual described in
subparagraph (A) or (B). In no event shall the 1992
A35
The 1992 Plan enrolls beneficiaries upon determining
they are eligible for coverage. The Coal Act imposes an
ongoing duty on the last signatory operator and its
related persons to pay annual prefunding premiums and
monthly per-beneficiary premiums to the 1992 plan for
every month the 1992 Plan provides health benefits to the
operator’s retirees. 26 U.S.C. § 9712(d)(1)(B).
There are also payment obligations associated with
the applicable NBCWAs. In addition to Adventure’s stat-
utory obligations under the Act, it may be required to pay
contributions under these wage agreements.‘
UMWA Benefit Plan provide health benefits coverage
to any eligible beneficiary who is a coal industry
retiree who retired from the coal industry after
September 30, 1994, or any beneficiary of such
individual.
ld.
4 Coal industry retirees have been promised pensions and
health benefits under collective bargaining agreements dating
back to 1947. See generally Carbon Fuel, 891 F. Supp. at 1189-91.
The UMWA and the Bituminous Coal Operators Association
established several multiemployer plans, including the UMWA
1950 Pension Trust, 1974 Pension Trust, the 1950 Benefit Plan, and
the 1974 Benefit Plan. The 1993 NBCWA established the 1993
Benefit Plan to provide health benefits for certain retirees not
covered by the Coal Act and requires employer contributions to
the Cash Deferred Savings Plan of 1988 to defray the costs of
administering the trust. While Congress, via ERISA, has sought
to assure timely payment and streamlined collection of
delinquent contributions to multiemployer pension plans,
Adventure has often acted to the contrary. See Ex. 8 to Funds’
Mot. for Partial Summ. Jgt., Connors v. Adventure Resources, Inc.,
No. 5:90-0209 (S.D. W. Va. Nov. 8, 1991). The exhibits to the
Funds’ motion will hereafter be denominated “Ex. ‘{blank]’.”
A36
Il. FACTUAL AND PROCEDURAL BACKGROUND
Given the facts are not disputed, the Court will sum-
marize how this controversy developed.
H. Paul Kizer, the owner of the Adventure com-
panies, started Maben Energy in 1971 and acquired an
ownership interest in many of the Adventure companies
in 1977. By the mid-1980s, the number of companies had
proliferated. Nevertheless, all were consolidated under
Kizer’s sole ownership before bankruptcy. By the late
1980s, Adventure was touted as “the largest independent
coal producer in West Virginia and the 49th largest inde-
pendent coal producer in the United States.” Ex. 25.
Unfortunately, the Adventure companies began to
experience financial setbacks resulting in, inter alia, the
December 1992 filing of petitions by twenty companies
related to Adventure Resources, Inc., under Chapter 11 of
the Bankruptcy Code. Proofs of claim for unpaid contri-
butions and premiums were filed timely by the Funds.
On December 14, 1993 Adventure® initiated this adver-
sary proceeding by filing a complaint seeking disal-
lowance of the Funds’ claims.
There are over 500 beneficiaries for whom the
Adventure companies are responsible, including retired
5 “Adventure” refers to the twenty Plaintiff Chapter 11
debtor companies as well as to eight to ten Plaintiff non-
bankrupt affiliates. In all, there are 46 Adventure companies,
some operating and some defunct. Various members of the
group have been signatory to NBCWAs since 1974. Adventure is
currently signatory to a 1993 NBCWA under the names of
Maben Energy Corporation and a list of affiliates. See Ex. 2.
A37
miners and eligible dependents.® Adventure has not paid
per beneficiary premiums to the Combined Fund since
December 1994. As of November 25, 1995 Adventure’s
delinquent Combined Fund premiums totalled over 1.2
million dollars, and currently accrue at a rate of over one
hundred fifty thousand dollars ($150,000) per month.
Adventure never has paid per beneficiary premiums to
the 1992 Plan.”? The 1992 Plan is owed over 1.7 million
¢ The Funds acknowledge the precise numbers of
attributable beneficiaries in the Combined Fund and the 1992
Plan go up or down as more beneficiaries are enrolled in the
plans, leave the plans due to mortality or other circumstances,
or as the Social Security Administration’s assignments are
adjusted.
” Adventure maintained for a good portion of this litigation
that it was providing coverage to its retirees through a § 9711
plan. In reality, however, Adventure was merely processing
claims through ‘ts self-insured plan. It eventually came to light
that Adventure had been failing to pay timely its beneficiaries’
medical bills and that health care providers were refusing to
serve these beneficiaries. The following is an excerpt from an
August 1995 letter to the Funds’ counsel from the Chief
Financial Officer of the Adventure Resources Group:
In regard to your inquiry please be advised that
employees, retired and active, which have filed
claims under any of the Maben Energy Company-
affiliated health care plans have not had any such
claims funded after October 6, 1994. All active claims
which entered the system after October 7, 1994
remain unpaid.
Ex. 5, letter from David A. Harrah, CPA, to Susan Cannon-Ryan
(Aug. 29, 1995). The 1992 Plan stepped in after this cessation of
coverage and determined Adventure’s beneficiaries were not
receiving § 9711 benefits from Adventure. Accordingly,
Adventure’s beneficiaries were enrolled in the 1992 Plan
retroactively to the date coverage from Adventure’s purported
A38
dollars for per beneficiary premiums as of January 15,
1996, which continue to accrue at a rate of over seventy-
three thousand dollars ($73,000) per month. Adventure
also apparently failed to pay any pre-funding premiums,
which also are included in the Funds’ proofs of claim.
These premiums accrue at a rate of one hundred twenty-
one dollars ($121.00) times the number of eligible and
potentially eligible 1992 Plan beneficiaries attributable to
Adventure. Finally, Adventure has failed to pay any con-
tributions under the applicable NBCWAs since January
1995 and has accrued an estimated four hundred thou-
sand dollars ($400,000) in unpaid contributions since
November 1995, which continue to accrue at a rate of
over forty-two thousand dollars ($42,000) per month.
There are essentially two types of obligations at issue
in this adversary proceeding: (1) monthly per beneficiary
premiums owed under the Coal Act; and (2) monthly
contributions owed under the applicable NBCWA. The
Funds claim all of these obligations are Chapter 11
administrative expenses under various Bankruptcy Code
provisions. There are two bases for the Funds’ assertion.
First, the Funds assert the premiums accrued and
accruing under the Coal Act are administrative expenses®
because, in the alternative, (1) the premiums are a tax on
the Debtors’ estates under 11 U.S.C. § 503(b)(1)(B); and
(2) the premiums are an actual, necessary expense of the
§ 9711 plan ceased. Adventure then was billed for the 1992 Plan
premiums.
8 For the uninitiated, administrative expenses are payable
by the trustee as a first priority expense under 11 U.S.C.
507(a)(1).
A39
estates under 11 U.S.C. § 503(b)(1)(A). Second, the Funds
assert the contributions accrued and accruing under the
applicable NBCWA are administrative expenses (1) to the
extent they accrued and are accruing post-petition; and
(2) to the extent they accrued pre-petition, alternatively,
under either 11 U.S.C. § 1113(f), dealing with rejection of
collective bargaining agreements in bankruptcy, or 11
U.S.C. § 1114(e), dealing with the treatment of retiree
benefits in bankruptcy.’
Ill. LAW AND ANALYSIS
A. The Summary Judgment Standard:
The well-settled standard governing the disposition
of a motion for summary judgment recently was restated
by our Court of Appeals:
A moving party is entitled to summary judg-
ment ‘if the pleading|s], depositions, answers to
interrogatories, and admissions on file, together
with the affidavits, if any, show that there is no
genuine issue as to material fact and that the
9 In its complaint, Adventure also challenged the Funds’
claim for contingent benefit plan withdrawal liability. As noted
by the Funds, however, “separate withdrawals giving rise to
such a claim could only occur if the Adventure companies are
not alter egos, joint employers or a single employer for purposes
of this action . . . [and] entry of summary judgment on this issue
in favor of the Funds would render the contingent claim moot.”
Funds Mem. in Supp. of Summ. Jgt. at 2 n.3; see also Funds Reply
Mem. at 3 (“The Funds’ contingent claim for benefit plan
withdrawal liability is . . . moot.”). Given the Court’s favorable
ruling for the Funds on the related person/alter ego/joint
employer/single employer issue, supra note 5, there is no
necessity to reach the Funds’ contingent claim.
A40
moving party is entitled to judgment as a matter
of law.’ Fed.R.Civ.Pro. 56(c). See Charbonnages de
France v. Smith, 597 F.2d 406 (4th Cir.1979).
A genuine issue exists ‘if the evidence is
such that a reasonable jury could return a ver-
dict for the nonmoving party.’ Anderson v. Lib-
erty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505,
2510, 91 L.Ed.2d 202 (1986). In considering a
motion for summary judgment, the court is
required to view the facts and draw reasonable
inferences in a light most favorable to the non-
moving party. Id. at 255, 106 S.Ct. at 2514. The
plaintiff is entitled to have the credibility of all
his evidence presumed. Miller v. Leathers, 913
F.2d 1085, 1087 (4th Cir.1990), cert. denied, 498
U.S. 1109, 111 S.Ct. 1018, 112 L.Ed.2d 1100
(1991). The party seeking summary judgment
has the initial burden to show absence of evi-
dence to support the nonmoving party’s case.
Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106
S.Ct. 2548, 2554, 91 L.Ed.2d 265 (1986). The
opposing party must demonstrate that a triable
issue of fact exists; he may not rest upon mere
allegations or denials. Anderson, 477 U.S. at 248,
106 S.Ct. at 2510. A mere scintilla of evidence
supporting the case is insufficient. Id.
Shaw v. Stroud, 13 F.3d 791, 798 (4th Cir.), cert. denied, 115
S.Ct. 68 (1994); see also Carbon Fuel, 891 F. Supp. at
1188-89.
B. Joint and Several Liability Under the Coal Act
and the Wage Agreements:
As an initial matter, the Court notes the Funds devote
a substantial portion of its opening brief and exhibits
A4l
toward establishing the joint and several liability of the
Adventure Plaintiffs/counter-Defendants and their other
affiliates for the obligations sought in this proceeding.
Adventure does not dispute the factual statement in its
response and proffers no authority otherwise from the
record. Adventure does appear to make a brief policy
argument, without citation to supporting authority, seek-
ing to avoid the imposition of joint and several liability.
This, of course, is insufficient to contradict the Funds’
undisputed and well-supported factual assertions for
purposes of Rule 56, Federal Rules of Civil Procedure.
Accordingly, the Court concludes as a matter of law
Plaintiff, each related Plaintiff bankruptcy estate and the
non-bankrupt Plaintiffs are jointly and severally liable for
the claims asserted by the Funds.
C. Are the Coal Act Premiums Entitled to Adminis-
trative Expense Priority:
The Funds assert the premiums accrued and accruing
under the Coal Act are administrative expenses because,
in the alternative, (1) the premiums are a tax on the
Debtors’ estates under 11 U.S.C. § 503(b)(1)(B); and, or (2)
the premiums are an actual, necessary expense of the
estates under 11 U.S.C. § 503(b)(1)(A).
As to the tax argument, the Funds claim all per
beneficiary premiums are recognized as post-petition
A42
taxes under § 503(b)(1)(B) of the Bankruptcy Code.!°
Adventure appears to concede its Combined Fund pre-
miums are taxes and thus administrative expenses. It
argues, however, the 1992 Plan premiums are pre-petition
claims and in the nature of excise taxes under 11 U.S.C.
§ 507(a)(8)(E), thus according them less than first priority
status."!
10 Sections 503(b)(1)(A) and (B) provide in pertinent part as
follows:
(b) After notice and a hearing, there shall be allowed
administrative expenses . . . including -
(1) (A) the actual, necessary costs and expenses of
preserving the estate, including wages, salaries,
or commissions for services rendered after the
commencement of the case; [and]
(B) any tax -
(i) incurred by the estate, except [an excise
tax under 11 U.S.C. 507(a)(8)(e).]
Id.
11 Section 507(a)(8)(E) provides, in pertinent part, as
follows:
(a) The following expenses and claims have priority
in the following order:
(8) Eighth, allowed unsecured claims of
governmental units, only to the extent that such
claims are for -
(E) an excise tax on -
(i) a transaction occurring before the
date of the filing of the petition for which
a return, if required, is last due, under
applicable law or under any extension,
after three years before the date of the
filing of the petition; or
A43
The seminal case, and one of the very few cases
anywhere, addressing the classification and priority of
Coal Act claims is In re Chateaugay Corp., 53 F.3d 478, 486
(2d Cir. 1995). In Chateaugay, LTV Steel Company, Inc. and
several subsidiaries appealed a judgment of the district
court holding that LTV’s obligations under the Coal Act
were incurred taxes for purposes of § 503(b)(1)(B) and
thus entitled to administrative priority under § 507(a)(1).
LTV, along with over fifty subsidiaries and affiliates, filed
for protection under Chapter 11 on July 17, 1986. The
Coal Act was enacted on October 24, 1992 and became
effective February 1, 1993. Signing Stmt. of President
George Bush attached to the Energy Policy Act of 1992,
reprinted in 1992 U.S.C.C.A.N. 1953, 2534-1 at 3; In re
Chateaugay, 53 F.3d at 487. The district court in Chateaugay
held the assessments accruing during the bankruptcy
period under the Coal act were in the nature of a tax and
therefore entitled to administrative priority treatment.
The Second Circuit concluded the critical issue was
whether the premiums assessed under the Coal Act were
in the nature of a “claim” pre-existing the Chapter 11
petition which would, of course, have to be “disallowed.”
Id. at 496. A “claim,” for purposes of the Bankruptcy
Code, is defined in 11 U.S.C. § 101(5) as a “right to
payment, whether or not such right is reduced to judg-
ment, liquidated, unliquidated, fixed, contingent,
(ii) if a return is not required, a
transaction occurring during the three
years immediately preceding the date of
the filing of the petition;
Id. (emphasis added).
A44
matured, unmatured, disputed, undisputed, legal, equita-
ble, secured, or unsecured. ...” Id. As noted in Cha-
teaugay, “ ‘Congress unquestionably expected this
definition to have wide scope.’ . . . [and intended] to
invest the term ‘claim’ with the ‘broadest possible’ scope
so that ‘all legal obligations of the debtor . . . will be able
to be dealt with in a bankruptcy case.’” Id. at 496-97
(quoting In re Chateaugay, 944 F.2d 997, 1003 (2d Cir.
1991); Pennsylvania Dep't of Pub. Welfare v. Davenport, 495
U.S. 552, 558 (1990); and H.R. Rep. No 95-595, at 310
(1977), reprinted in 1978 U.S.C.C.A.N. 5787, 6267).!2 Nev-
ertheless, the term does not have “infinite” reach. In re
Chateaugay, 53 F.3d at 497. The court in In re Chateaugay
determined no right to payment existed at the time of
LTV’s petition because, inter alia, no conceiveble “right to
payment. . . existed until the enactment of the Coal Act
six years after the filing of LTV’s petition.” Id. at 497. The
court went on to hold “the portion of LTV’s Coal Act
liability accruing during the pendency of its bankruptcy
is entitied to treatment as an administrative expense of
the estate pursuant to section 507(a)(1).”'5 Id. at 498.
Adventure would have the issue framed similarly to
the analysis in In re Chateaugay, i.e., whether the enact-
ment of the Coal Act in October 1992 (predating the
12 Our Court of Appeals has similarly construed “claim” in
sweeping fashion. See In re Carolina Motor Express, Inc., 949 F.2d
107, 111 n.4 (4th Cir. 1991), rev'd on other grounds sub nom. Reiter
v. Cooper, 504 U.S. 907 (1993).
13 Adventure also appears to argue the contribution
obligations under the Coal Act are not taxes within the meaning
of 503(b)(1)(B). This argument clearly is without merit. In re
Chateaugay, 53 F.3d at 498.
A45
Chapter 11 petition by a couple of months) operates to
give the Funds a lower priority or extinguishable pre-
petition right to payment of per beneficiary premiums
under the 1992 Plan.!4
The analysis undertaken by the court in In re Cha-
teaugay is, of course, not binding on this Court. Were the
Court to apply the right-to-payment analysis arising from
In re Chateaugay, however, it would conclude the “obliga-
tions” contained in the Act at the time of the petition
were simply too removed and attenuated to constitute a
pre-petition right to payment. As noted, the Act did not
become effective until February 1993.
The Court concludes it is more appropriate to make
the straightforward determination of whether the obliga-
tions at issue here were “incurred by the estate” pursuant
to § 503(b)(1)(B).!5 If so, they fall squarely within that
‘4 There is one general fallacy surfacing throughout
Adventure’s argument which bears correction. Adventure
seems to suggest their obligations are controlled not by the Coal
Act, but rather by the prior NBCWAs to which Adventure was
signatory. This clearly is not the law in this judicial district. In re
Chateaugay, 53 F.3d at 497 (stating “The obligations here at issue
are exclusively statutory in origin and cannot be considered a
‘pay-back’ for pre-petition labor. . . . LTV’s liability to the
Combined Fund is newly imposed by the Coal Act, not a revival
of old contractual obligations.”); Carbon Fuel, 891 F. Supp. at
1198 (stating “The parties’ contractual obligations entered prior
to the enactment of the Coal Act are not continued under the
Act. The private provisions required by the applicable NBCWAs
do not survive, nor are they codified, ratified, confirmed, or
renewed.”)
15 Section 503(b)(1)(B) does not accord administrative
expense status to “a tax of a kind specified in section 507(a)(8),”
A46
-
section, and are thus entitled to administrative priority
status without reference to § 101(5)(A). If the Court can
determine the 1992 Plan per beneficiary premiums were
i.é., an excise tax, regardless of when it is incurred. Accordingly,
the Court must address whether the premiums here constitute
such a tax. Adventure half-heartedly asserts the 1992 Plan per
beneficiary premiums are in the nature of a pre-petition excise
tax under § 507(a)(8)(E)(ii), and thus outside the reach of
§ 503(b)(1)(B). While the Court is aware of contrary authority, it
cannot conclude the premium obligations here are excise taxes.
Section 507(a)(8)(E)(ii) provides that such a tax is levied on “a
transaction occurring during the three years immediately
preceding the date of the filing of the petition.” While it is
possible to identify conceptually a transactional component
which might support imposition of the 1992 Plan per beneficiary
premiums, see In re Rauer, Bk. No. 95-20332, slip op. at 5, that
analysis appears to stretch the limits of the section. If the
remaining requirements of § 507(a)(8) were present in this case,
however, it is conceivable under circuit precedent Adventure
might be able to identify the necessary transactional component
for application of § 507(a)(8)(E). Cf. New Neighborhoods v. West
Virginia Workers’ Comp. Fund, 886 F.2d 714, 719 (4th Cir. 1989)
(holding premiums due the West Virginia Workers’
Compensation Fund were excise taxes under § 507, in part,
because “[t]he obligation imposed upon employers by the West
Virginia statute is imposed upon employers as a class and
liability arises through the transacticn or act of employing.”)
(emphasis added). The remaining requirements of § 507(a)(8)
are clearly not satisfied though. Section 507(a)(8) requires the
collecting authority to be a “governmental unit.” Adventure
itself forcefully (and curiously) argues against the Funds’
governmental unit status, and the Court concurs in that
analysis. See Pls.’ Resp. at 14 (stating “the Coal Act § 9712(a)(1)
clearly establishes the 1992 UMWA Benefit Plan as a private
plan, not a ‘governmental unit’ as defined under Section 101(27)
of the Code.”) Accordingly, the 1992 Plan per beneficiary
premiums cannot be excise taxes under § 507(a)(8)(E).
A47
incurred by the estate, it also would determine “neces-
sarily” the premiums were post-petition because “there
can be no bankruptcy estate until the petition in bank-
ruptcy is filed.” United States v. Friendship College, Inc.,
737 F.2d 430, 431 (4th Cir. 1984).
The Bankruptcy Code does not delineate precisely
when a tax obligation is “incurred” for purposes of
§ 503(b)(1)(B). The United States Court of Appeals for the
Sixth Circuit, however, recently adopted the appropriate
construction of the term. In re Columbia Gas Trans. Corp.,
37 F.3d 982 (6th Cir. 1994), cert. denied sub nom. West
Virginia State Dep't of Tax & Rev. v. Internal Rev. Serv., 115
S. Ct. 1793 (1995). The court observed: “a tax liability is
generally ‘incurred on the date it accrues, not on the date
of the assessment or the date on which it is payable.’ ” Id.
at 985; see also 2 William L. Norton, Jr. et al., Norton
Bankruptcy Law and Practice 2d § 42.19 (1994) (“The tax is
usually deemed to be incurred at one of two times: the
date of assessment of the tax or the date of accrual of the
tax.”) In common parlance, accrual occurs when an oblig-
ation “come[s] into existence as an enforceable claim.”
Webster’s Third New International Dictionary 13.
The 1992 Plan per beneficiary premiums come due
based on a premium rate set by the Trustees of the 1992
Plan multiplied by the number of beneficiaries attributa-
ble to the former employer who are then receiving bene-
fits from the 1992 Plan. 26 U.S.C. §§ 9712(d)(2)(A),
9712(d)(1)(B) and 9701(c)(4). So long as an employer pro-
vides benefits for these retirees directly through the
employer’s own plan, as required under 26 U.S.C. § 9711,
the beneficiaries are not enrolled in the 1992 Plan. This
A48
means the employer has no 1992 Plan beneficiaries attrib-
uted to it and the Funds have no enforceable claim for per
beneficiary premiums. When Adventure ceased the main-
tenance of its § 9711 plan in 1994, however, there arose in
the Funds “an enforceable claim” for per beneficiary pre-
miums and the premiums thus accrued on that date.
The Court therefore concludes Adventure incurred
the tax obligations due the Funds after the filing of the
Chapter 11 petition. Accordingly, the per beneficiary pre-
miums for the 1992 Plan are post-petition taxes under
§ 503(b)(1)(B) and entitled to first priority treatment
under § 507(a)(1).'© The Funds’ motion for partial sum-
mary judgment on this issue is GRANTED.’ .
D. Are Adventure’s Due and Owing Pre-Petition
Contributions For Retirees Under the Applicable
NBCWAs Entitled to Administrative Expense
Priority Under 11 U.S.C. § 1114(e):
The Funds next assert the pre-petition contributions
due under the applicable NBCWAs are entitled to admin-
16 While not specifically challenged, the same result would
appear to apply with respect to the Combined Fund premiums.
Prior to February 1, 1993 the Funds did not have an enforceable
claim against any operator to pay Combined Fund premiums. 26
U.S.C. §§ 9702(c), 9704(a).
17 Adventure apparently does not challenge the treatment
of prefunding premiums required under § 9712(d)(1)(A) as
administrative taxes. See Pls.’ Resp. at 2. The Funds also have a
persuasive argument that the Coal Act premiums are an actual,
necessary expense of the estates under 11 U.S.C. § 503(b)(1)(A).
Given the disposition under § 503(b)(1)(B), however, the Court
need not address this argument.
A49
istrative expense status under 11 U.S.C. § 1114(e).'®
Adventure disagrees, asserting § 1114 was enacted only
18 Adventure does not dispute the NBCWA contributions
which came due post-petition are entitled to administrative
expense priority.
In addition to its § 1114(e) argument, the Funds also assert
the NBCWA contributions are entitled to administrative
expense status under 11 U.S.C. § 1113(f). A good and very recent
general discussion of § 1113 can be found in In re Lady H Coal
Company, No. 94-20449 (Bankr. S.D. W. Va. Feb. 28, 1996). Section
1113(f) provides as follows:
(f) No provision of this title shall be construed to
permit a trustee to unilaterally terminate or alter any
provisions of a collective bargaining agreement prior
to compliance with the provisions of this section.
Id. The Funds rely heavily on the decision in In re Unimet, 842
F.2d 879 (6th Cir.), cert. denied sub nom. Unimet Corp. v. United
Steelworkers of America, 488 U.S. 828 (1988), which essentially
interpreted § 1113(f) to provide a superpriority for the payment
of retiree benefits. Id. at 884. The Court declines to apply
§ 1113(f) in similar fashion to the retiree obligations in question
here. The holding in Unimet was subsequently codified by
Congress in § 1114. In re lonosphere Clubs, Inc., 22 F.3d 403, 408
(2d Cir. 1994) (stating “That Congress was compelled to act
suggests that the protection it provided in section 1114 was not
already compelled by section 1113.”) The decision in In re
lonosphere Clubs, Inc., 134 B.R. 515 (Bankr. S.D.N.Y. 1991)
clarifies the respective scopes of § 1113 and § 1114:
§ 1114 is the exclusive provision relating to the
modification or termination of retiree benefits. § 1114
specifically and unequivocally addresses retiree
issues that are otherwise generally covered by § 1113.
Id. at 519 (emphasis added). There is significant evidence of
Congressional intent supporting the exclusivity analysis of
lonosphere. Rather than adopting a new comprehensive
provision dealing with retiree benefits, congressional bills
predating § 1114 sought merely to amend § 1113 to make clear
A50
to protect retiree benefits post-petition. A brief examina-
tion of the history of § 1114 is in order.!9
In the mid-1980s, the fortunes of the steel industry
sank dramatically. This resulted in the closure of
numerous steel production facilities followed inevitably
by Chapter 11 filings. Despite the presence of § 1113,
many Chapter 11 debtors ceased payments for retiree
benefits, arguing the Bankruptcy Code did not permit
that its requirements regarding termination or alteration of the
provisions of a collective bargaining agreement included any
provision relating to benefits for retirees. See, e.g., H.R. 5490,
99th Cong., 2d Sess., 132 Cong. Rec. H6507 (daily ed. Sept. 9,
1986). Congress ultimately rejected this approach. Based on the
authority discussed above, the Court concludes the Funds’
administrative expense argument for contributions in the
nature of retiree benefits is controlled by § 1114. Section 1113 is
not implicated.
To the extent administrative expense status is sought for
contributions not in the nature of retiree benefit obligations, and
with an awareness of contrary authority, the Court concludes
§ 1113(f) does not assist the Funds. Section 1113 simply does not
address the priority in bankruptcy of obligations under a
collective bargaining agreement.
'° The formal legislative history of § 1114 is limited to the
somewhat sketchy Senate Report on Senate Bill 548. See S. Rep.
No. 119, 100th Cong., Ist Sess., reprinted in 1988 U.S.C.C.A.N.
683. The Court, however, has located a thorough analysis by a
senior attorney at the Federal Deposit Insurance Corporation,
discussing at length the legislative process that led to the
enactment of § 1114. Andrea J. Winkler, Legislative History of the
Retiree Benefits Bankruptcy Protection Act of 1988, reprinted in
App. 1 Lawrence P. King et al., Collier on Bankruptcy, Part XIX
(15th ed. 1995). Also helpful on the background of § 1114 is
Susan J. Stabile, Protecting Retiree Medical Benefits in Bankruptcy:
The Scope of Section 1114 of the Bankruptcy Code, 14 Cardozo L.
Rev. 1911 (1993).
A51
such post-petition payments. The impetus for Congres-
sional action was the Chapter 11 filing of LTV Corpora-
tion on July 17, 1986. LTV promptly suspended retirement
benefit payments to over 78,000 former employees when
it filed for bankruptcy protection.
Illustrating the urgency of the situation, the Senate
completed enactment of a remedial measure just 13 days
after LTV’s suspension of payments requiring LTV and its
subsidiaries to continue paying all medical and life insur-
ance benefits to retirees. See 132 Cong. Rec. $9882 (daily
ed. July 30, 1986). Following a series of stopgap measures
over the course of the next two years, President Reagan
signed the Retiree Benefits Bankruptcy Protection Act,
thus putting § 1114 into effect.
Section 1114(e) provides as follows:
(e) (1) Notwithstanding any other provision of
this title, the debtor in possession, or the
trustee if one has been appointed under the
provisions of this chapter (hereinafter in this
section ‘trustee, shall include a debtor in
possession), shall timely pay and shall not
modify any retiree benefits, except that -
(A) the court, on motion of the trustee
or authorized representative, and after
notice and a hearing, may order mod-
ification of such payments, pursuant to
the provisions of subsections (g) and
(h) of this section, or
(B) the trustee and the authorized
representative of the recipients of those
benefits may agree to modification of
such payments,
A52
after which such benefits as modified shall con-
tinue to be paid by the trustee.
(2) Any payment for retiree benefits
required to be made before a plan con-
firmed under section 1129 of this title is
effective has the status of an allowed
administrative expense as provided in sec-
tion 503 of this title.
Id.20
The Court cannot simply presume Congress intended
to accord high priority status to pre-petition retiree bene-
fit claims because of the general importance of such bene-
fits or the seeming unfairness of a decision otherwise.
Rather, in the absence of specific direction, the Court
must be guided by a general thesis underlying the Bank-
ruptcy Code:
20 Several courts have bemoaned the arduous task of
interpreting § 1114. The following excerpt from a recent
decision of the United States Court of Appeals for the Second
Circuit is indicative:
As our exhaustive experience with RICO has
taught us, a statute which at first glance appears to be
‘plain on its face,’ may require substantial judicial
interpretation. Section 1114 turned out to be such a
statute.
In re Ames Dep't Stores, Inc., 76 F.3d 66, 68 (2d Cir. 1996) (citations
omitted); see also In re lonosphere Clubs, 134 B.R. at 517 (stating
“[§ 1114] has spawned diverse and sometimes inconsistent
interpretations and theories as to the substantive and
procedural standards necessary for modification of retiree
benefits. Expressed colloquially, these interpretations are all
over the lot. Some are well reasoned, some conclusory with
limited analysis.”).
A53
‘One of the central themes of the Bankruptcy
Code is equality of distribution. [In] In re Mam-
moth Mart, 536 F.2d 950 ([ist Cir.] 1976), the
Court held “if one claimant is to be preferred
over others, the purpose should be clear from
the statute. To give priority to a claimant not
clearly entitled thereto is not only inconsistent
with the policy of equality of distribution, it
dilutes the value of the priority for those credi-
tors Congress intended to prefer.” ’
In Re Rayman, Martin & Fader, Inc., 170 B.R. 286, 290 (D.
Md. 1994) (quoted authority omitted).
Aside from this general principle, there are specific
indications Congress sought only to accord priority status
to post-petition retiree benefits. While there is little rea-
soned case law on point, the commentator perhaps most
familiar with the legislative history surrounding § 1114
has surmised as much. See Winkler, Legis!ative History of
the Retiree Benefits Bankruptcy Protection Act of 1988, 1
reprinted in App. 1 Lawrence P. King et al., Collier on
Bankruptcy, Part XIX, 1894 (15th ed. 1995) (stating § 1114
“provided that retiree benefits paid during the pendency of
the case have the status of allowed administrative
expenses”) (emphasis added). A leading bankruptcy com-
mentator concurs. See 4 William L. Norton, Jr. et al.,
Norton Bankruptcy Law & Practice 2d § 84:10 (1995) (stating
“Section 1114(e)(2) grants administrative expense priority
status to benefits payments accruing post-petition up to the
reorganization plan confirmation date. Effectively, this
means that any retiree insurance benefits coming due
between the filing of the petition and the confirmation date are
subordinate only to the claims of secured creditors.”)
(emphasis added).
A54
It is clear the purpose of § 1114 was to remedy the
harm caused by debtors such as LTV who suspend retiree
benefit following the filing of a Chapter 11 petition. The
C. art is not inclined to extend the reach of § 1114 further
without explicit Congressional direction. Accordingly, the
Court will not accord administrative priority status to
Adventure’s pre-petition contributions due under the
applicable NBCWAs. The Funds’ motion for partial sum-
mary judgment on this issue is DENIED.
IV. CONCLUSION
Based on the foregoing analysis, the Court GRANTS
in part and DENIES in part the Funds’ motion for partial
summary judgment. Administrative expense status will
be accorded the Funds’ claims as discussed herein. Each
bankruptcy estate and the non-bankrupt Plaintiffs are
jointly and severally liable for the claims asserted. The
Court leaves the determination of the appropriate allow-
able amount of the claims to the Bankruptcy Court, pend-
ing the receipt of updated information from the Funds.
With relief, this case is DISMISSED from the Court's
docket.
The Clerk is directed to send a copy of this Order to
counsel of record.
ENTER: March 8, 1996
/s/ Charles H. Haden II
Charles H. Haden II, Chief Judge
A55
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
(Filed Apr. 24, 1998)
No. 96-1557
CA-94-858-2
BK-91-50509
AP-93-197
ADVENTURE RESOURCES, INCORPORATED, a West
Virginia corporation; AMIGO SMOKELESS COAL
COMPANY, a West Virginia corporation; TOMMY
CREEK COAL COMPANY, a West Virginia corporation;
GREEN MOUNTAIN ENERGY, INCORPORATED, a
West Virginia corporation; M.A.E. SERVICES,
INCORPORATED, a West Virginia corporation;
MABEN ENERGY CORPORATION, a West Virginia
corporation; RALEIGH LEASING, INCORPORATED, a
West Virginia corporation; STONEY COAL COMPANY,
a West Virginia corporation; SPRUCE LAUREL COAL
COMPANY, a West Virginia corporation; HAWLEY
COAL MINING CORPORATION, a West Virginia
corporation; BICKFORD MINING, INCORPORATED,
also known as Allports Coals, Incorporated, a West
Virginia corporation; BARRETT FUEL CORPORATION,
successor by merger to Beckley Lick Run Company, a
West Virginia corporation; EAST GULF FUEL
CORPORATION, a West Virginia corporation; COAL X
EQUIPMENT & SUPPLY COMPANY, INCORPORATED,
formerly known as Lakeside Supply Company,
Incorporated, a West Virginia corporation; BECKLEY
REPAIR & HYDRAULIC SERVICE, INCORPORATED, a
West Virginia corporation; HALFWAY,
INCORPORATED, a West Virginia corporation;
CHESAPEAKE LEASING, INCORPORATED, a West
Virginia corporation; PINEY FUEL CORPORATION, a
West Virginia corporation; LAKESIDE LEASING,
INCORPORATED, formerly known as Airplane
A56
Leasing, Incorporated, a West Virginia corporation;
RALEIGH SERVICES, INCORPORATED, a West
Virginia corporation; ATLAS COAL LEASING,
INCORPORATED, a West Virginia corporation; SUGAR
CAMP MINING, INCORPORATED, a West Virginia
corporation; H. D. ENTERPRISES, LIMITED, a West
Virginia corporation; JET COAL SERVICES,
INCORPORATED, a West Virginia corporation;
MICROBLACK, INCORPORATED, a West Virginia
corporation; DOVER COAL SALES, INCORPORATED,
a West Virginia corporation; NO. 10 MINING,
INCORPORATED, a West Virginia corporation;
PANTHER RED ASH LAND COMPANY,
INCORPORATED, a West Virginia corporation
Plaintiffs - Appellees
V.
MICHAEL H. HOLLAND, MARTY D. HUDSON,
ELLIOT A. SEGAL, PAUL R. DEAN, Trustees of the
UMWA 1950 Pension Trusts and UMWA 1974 Pension
Trusts; UNITED MINE WORKERS OF AMERICA 1974
PENSION TRUST; UNITED MINE WORKERS OF
AMERICA 1950 PENSION TRUST; MICHAEL H.
HOLLAND, MARTY D. HUDSON, ELLIOT A. SEGAL,
THOMAS O. S. RAND, CARLTON R. SICKLES, AND
GAIL R. WILENSKY, WILLIAM P. HOBGOOD,
Trustees of the United Mine Workers of America
Combined Benefit Fund; UNITED MINE WORKERS OF
AMERICA COMBINED FUND; MICHAEL H.
HOLLAND, MARTY D. HUDSON, THOMAS F.
CONNORS and ROBERT D. WALLACE, Trustees of
the UMWA 1992 Benefit Plan; UNITED MINE
WORKERS OF AMERICA 1992 BENEFIT PLAN;
MICHAEL H. HOLLAND, MARTY D. HUDSON,
THOMAS F. CONNORS, ELLIOT A. SEGAL, Trustees
of the UMWA 1993 Benefit Plan; UNITED MINE
A57
WORKERS OF AMERICA 1993 BENEFIT PLAN; and
MICHAEL H. HOLLAND, MARTY D. HUDSON,
ELLIOTT A. SEGAL, JOSEPH J. STAHL, II, Trustees of
the UMWA Cash Cash Deferred Savings Plan of 1988;
UNITED MINE WORKERS OF AMERICA CASH
DEFERRED SAVINGS PLAN OF 1988
Defendants — Appellants
and
DONNA E. SHALALA, Secretary, Department of
Health & Human Services, Social Security
Administration of the United States of America
Defendant
No. 96-1938
CA-94-858-2
BK-91-50509
AP-93-197
ADVENTURE RESOURCES, INCORPORATED, a West
Virginia Corporation
Plaintiff — Appellant
and
AMIGO SMOKELESS COAL COMPANY, a West
Virginia corporation; TOMMY CREEK COAL
COMPANY, a West Virginia corporation; GREEN
MOUNTAIN ENERGY, INCORPORATED, a West
Virginia corporation; M.A.E. SERVICES,
INCORPORATED, a West Virginia corporation;
MABEN ENERGY CORPORATION, a West Virginia
corporation; RALEIGH LEASING, INCORPORATED, a
West Virginia corporation; STONEY COAL COMPANY,
A58
a West Virginia corporation; SPRUCE LAUREL COAL
COMPANY, a West Virginia corporation; HAWLEY
COAL MINING CORPORATION, a West Virginia
corporation; BICKFORD MINING, INCORPORATED,
also known as Allports Coals, Incorporated, a West
Virginia corporation; BARRETT FUEL CORPORATION,
successor by merger to Beckley Lick Run Company, a
West Virginia corporation; EAST GULF FUEL
CORPORATION, a West Virginia corporation; COAL X
EQUIPMENT & SUPPLY COMPANY, INCORPORATED,
formerly known as Lakeside Supply Company,
Incorporated, a West Virginia corporation; BECKLEY
REPAIR & HYDRAULIC SERVICE, INCORPORATED, a
West Virginia corporation; HALFWAY,
INCORPORATED, a West Virginia corporation;
CHESAPEAKE LEASING, INCORPORATED, a West
Virginia corporation; PINEY FUEL CORPORATION, a
West Virginia corporation; LAKESIDE LEASING,
INCORPORATED, formerly known as Airplane
Leasing, Incorporated, a West Virginia corporation;
RALEIGH SERVICES, INCORPORATED, a West
Virginia corporation; ATLAS COAL LEASING,
INCORPORATED, a West Virginia corporation; SUGAR
CAMP MINING, INCORPORATED, a West Virginia
corporation; H. D. ENTERPRISES, LIMITED, a West
Virginia corporation; JET COAL SERVICES,
INCORPORATED, a West Virginia corporation;
MICROBLACK, INCORPORATED, a West Virginia
corporation; DOVER COAL SALES, INCORPORAYED,
a West Virginia corporation; NO. 10 MINING,
INCORPORATED, a West Virginia corporation;
PANTHER RED ASH LAND COMPANY,
INCORPORATED, a West Virginia corporation
Plaintiffs
V.
A59
MICHAEL H. HOLLAND, MARTY D. HUDSON,
ELLIOT A. SEGAL, PAUL R. DEAN, Trustees of the
UMWA 1950 Pension Trusts and UMWA 1974 Pension
Trusts; UNITED MINE WORKERS OF AMERICA 1974
PENSION TRUST; UNITED MINE WORKERS OF
AMERICA 1950 PENSION TRUST; MICHAEL H.
HOLLAND, MARTY D. HUDSON, ELLIOT A. SEGAL,
THOMAS O. S. RAND, CARLTON R. SICKLES, AND
GAIL R. WILENSKY, WILLIAM P. HOBGOOD,
Trustees of the United Mine Workers of America
Combined Benefit Fund; UNITED MINE WORKERS OF
AMERICA COMBINED FUND; MICHAEL H.
HOLLAND, MARTY D. HUDSON, THOMAS F.
CONNORS and ROBERT D. WALLACE, Trustees of
the UMWA 1992 Benefit Plan; UNITED MINE
WORKERS OF AMERICA 1992 BENEFIT PLAN;
MICHAEL H. HOLLAND, MARTY D. HUDSON,
THOMAS F. CONNORS, ELLIOT A. SEGAL, Trustees
of the UMWA 1993 Benefit Plan; UNITED MINE
WORKERS OF AMERICA 1993 BENEFIT PLAN; and
MICHAEL H. HOLLAND, MARTY D. HUDSON,
ELLIOTT A. SEGAL, JOSEPH J. STAHL, II, Trustees of
the UMWA Cash Deferred Savings Plan of 1988;
UNITED MINE WORKERS OF AMERICA CASH
DEFERRED SAVINGS PLAN OF 1988
Defendants — Appeliees
and
DONNA E. SHALALA, Secretary, Department of
Health & Human Services, Social Security
Administration of the United States of America
Defendant
A60
On Petition for Rehearing with Suggestion
for Rehearing In Banc
The appellees’ petition for rehearing and suggestion
for rehearing in banc were submitted to this Court. As no
member of this Court or the panel requested a poll on the
suggestion for rehearing in banc, and
As the panel considered the petition for rehearing
and is of the opinion that it should be denied,
IT IS ORPERED that the petition for rehearing and
suggestion for rehearing in banc are denied.
For the Court,
/s/ Patricia S. Connor
CLERK
Aél
§ 1113. Rejection of collective bargaining agreements
(a) The debtor in possession, or the trustee if one
has been appointed under the provisions of this chapter,
other than a trustee in a case covered by subchapter IV of
this chapter and by title | of the Railway Labor Act, may
assume or reject a collective bargaining agreement only in
accordance with tke provisions of this section.
(b)(1) Subsequent to filing a petition and prior to
~ filing an application seeking rejection of a collective bar-
gaining ageement, the debtor in possession or trustee
(hereinafter in this section “trustee” shall include a
debtor in possession), shall -
(A) make a proposal to the authorized rep-
resentative of the employees covered by such
agreement, based on the most complete ana reli-
able information available at the time of such
proposal, which provides for those necessary
modifications in the employees benefits and
protections that are necessary to permit the reor-
ganization of the debtor and assures that all
creditors, the debtor and all of the affected par-
ties are treated fairly and equitably; and
(B) provide, subject to subsection (d)(3), the
representative of the employees with such rele-
vant information as is necessary to evaluate the
prop»sal.
(2) During the period beginning on the date of the
making of a proposal provided for in paragraph (1) and
ending on the date of the hearing provided for in subsec-
tion (d)(1), the trustee shall meet, at reasonable times,
with the authorized representative to confer in good faith
A62
in attempting to reach mutually satisfactory modifica-
tions of such agreement.
(c) The court shall approve an application for rejec-
tion of a collective bargaining agreement only if the court
finds that -
(1) the trustee has, prior to the hearing,
made a proposal that fulfills the requirements of
subsection (b)(1);
(2) the authorized representative of the
employees has refused to accept such proposal
without good cause; and
(3) the balance of the equities clearly favors
rejection of such agreement.
(d)(1) Upon the filing of an application for rejection
the court shall schedule a hearing to be held not later
than fourteen days after the date of the filing of such
application. All interested parties may appear and be
heard at such hearing. Adequate notice shall be provided
to such parties at least ten days before the date of such
hearing. The court may extend the time for the com-
mencement of such hearing for a period not exceeding
seven days where the circumstances of the case, and the
interests of justice require such extension, or for addi-
tional periods of time to which the trustee and represen-
tative agree.
(2) The court shall rule on such application for
rejection within thirty days after the date of the com-
mencement of the hearing. In the interests of justice, the
court may extend such time for ruling for such additional
period as the trustee and the employees’ representative
A63
may agree to. If the court does not rule on such applica-
tion within thirty days after the date of the commence-
ment of the hearing, or within such additional time as the
trustee and the employees’ representative may agree to,
the trustee may terminate or alter any provisions of the
collective bargaining agreement pending the ruling of the
court on such application.
(3) The court may enter such protective orders, con-
sistent with the need of the authorized representative of
the employee to evaluate the trustee’s proposal and the
application for rejection, as may be necessary to prevent
disclosure of information provided to such representative
where such disclosure could compromise the position of
the debtor with respect to its competitors in the industry
in which it is engaged.
(e) If during a period when the collective bargain-
ing agreement continues in effect, and if essential to the
continuation of the debtor’s business, or in order to avoid
irreparable damage to the estate, the court, after notice
and a hearing, may authorize the trustee to implement
interim changes in the terms, conditions, wages, benefits,
or work rules provided by a collective bargaining agree-
ment. Any hearing under this paragraph shall be sched-
uled in accordance with the needs of the trustee. The
implementation of such interim changes shall not render
the application for rejection moot.
(f) No provision of this title shall be construed to
permit a trustee to unilaterally terminate or alter any
provisions of a collective bargaining agreement prior to
compliance with the provisions of this section.
A6é4
Added Pub.L. 98-353, Title II, § 541(a), July 10, 1984, 98
Stat. 390.
§ 365. Executory contracts and unexpired leases
(a) Except as provided in sections 765 and 766 of
this title and in subsections (b), (c), and (d) of this section,
the trustee, subject to the court’s approval, may assume
or reject any executory contract or unexpired lease of the
debtor.
(b)(1) If there has been a default in an executory
contract or unexpired lease of the debtor, the trustee may
not assume such contract or lease unless, at the time of
assumption of such contract or lease, the trustee —
(A) cures, or provides adequate assurance
that the trustee will promptly cure, such default;
(B) compensates, or provides adequate
assurance that the trustee will promptly com-
pensate, a party other than the debtor to such
contract or lease, for any actual pecuniary loss
to such party resulting from such default; and
(C) provides adequate assurance of future
performance under such contract or lease.
(2) Paragraph (1) of this subsection does not apply
to a default that is a breach of a provision relating to -
(A) the insolvency of financial condition of
the debtor at any time before the closing of the
case;
A65
(B) the commencement of a case under this
title; :
(C) the appointment of or taking possession
by a trustee in a case under this title or a custo-
dian before such commencement; or
(D) the satisfaction of any penalty rate or
provision relating to a default arising from any
failure by the debtor to perform nonmonetary
obligations under the executory contract or
unexpired lease.
(3) For the purposes of paragraph (1) of this subsec-
tion and paragraph (2)(B) of subsection (f), adequate
assurance of future performances of a lease of real prop-
erty in a shopping center includes adequate assurance -
(A) of the source of rent and other consider-
ation due under such lease, and in the case of an
assignment, that the financial condition and
operating performance of the proposed assignee
and its guarantors, if any, shall be similar to the
financial condition and operating performance
of the debtor and its guarantors, if any, as of the
time the debtor became the lessee under the
lease;
(B) that any percentage rent due under such
lease will not decline substantially;
(C) that assumption or assignment of such
lease is subject to all the provisions thereof,
including (but not limited to) provisions such as
a radius, location, use, or exclusivity provision,
and will not breach any such provision con-
tained in any other lease, financing agreement,
or master agreement relating to such shopping
center; and
A66
(D) that assumption or assignment of such
lease will not disrupt any tenant mix or balance
in such shopping center.
(4) Notwithstanding any other provision of this sec-
tion, if there has been a default in an unexpired lease of
the debtor, other than a default of a kind specified in
paragraph (2) of this subsection, the trustee may not
require a lessor to provide services or supplies incidental
to such lease before assumption of such lease unless the
lessor is compensated under the terms of such lease for
any services and supplies provided under such lease
before assumption of such lease.
(c) The trustee may not assume or assign any execu-
tory contract or unexpired lease of the debtor, whether or
not such contract or lease prohibits or restricts assign-
ment of rights or delegation of duties, if —
(1)(A) applicable law excuses a party, other
than the debtor, to such contract or lease from
accepting performance from or rendering per-
formance to an entity other than the debtor or
the debtor in possession, whether or not such
contract or lease prohibits or restricts assign-
ment of rights or delegation of duties; and
(B) such party does not consent to such
assumption or assignment; or
(2) such contract is a contract to make a
loan, or extend other debt financing or financial
accommodations, to or for the benefit of the
debtor, or to issue a security of the debtor;
(3) such lease is of nonresidential real prop-
erty and has been terminated under applicable
nonbankruptcy law prior to the order for relief;
or
Pe Lee) ee. ae
A67
(4) such lease is of nonresidential real prop-
erty under which the debtor is the lessee of an
aircraft terminal or aircraft gate at an airport at
which the debtor is the lessee under one or more
additional nonresidential leases of an aircraft
terminal or aircraft gate and the trustee, in con-
nection with such assumption or assignment,
does not assume all such leases or does not
assume and assign all of such leases to the same
person, except that the trustee may assume or
assign less than all of such leases with the air-
port operator's written consent.
(d)(1) In a case under chapter 7 of this title, if the
trustee does not assume or reject an executory contract or
unexpired lease of residential real property or of personal
property of the debtor within 60 days after the order for
relief, or within such additional time as the court, for
cause, within such 60-day period, fixes, then such con-
tract or lease is deemed rejected.
(2) In a case under chapter 9, 11, 12, or 13 of this
title, the trustee may assume or reject an executory con-
tract or unexpired lease of residential real property or of
personal property of the debtor at any time before the
confirmation of a plan but the court, on the request of any
party to such contract or lease, may order the trustee to
determine within a specified period of time whether to
assume or reject such contract or lease.
(3) The trustee shall timely perform all the obliga-
tions of the debtor, except those specified in section
365(b)(2), arising from and after the order for relief under
any unexpired lease of nonresidential real property, until
such lease is assumed or rejected, notwithstanding sec-
tion 503(b)(1) of this title. The court may extend, for
A68
cause, the time for performance of any such obligation
that arises within 60 days after the date of the order for
relief, but the time for performance shall not be extended
beyond such 60-day period. This subsection shall not be
deemed to affect the trustee’s obligations under the pro-
visions of subsection (b) or (f) of this section. Acceptance
of any such performance does not constitute waiver or
relinquishment of the lessor’s rights under such lease or
under this title.
(4) Notwithstanding paragraphs (1) and (2), in a
case under any chapter of this title, if the trustee does not
assume or reject an unexpired lease of nonresidential real
property under which the debtor is the lessee within 60
days after the date of the order for relief, or within such
additional time as the court, for cause, within such 60-day
period, fixes, then such lease is deemed rejected, and the
trustee shall immediately surrender such nonresidential
real property to the lessor.
(5) Notwithstanding paragraphs (1) and (4) of this
subsection, in a case under any chapter of this title, if the
trustee does not assume or reject an unexpired lease of
nonresidential real property under which the debtor is an
affected air carrier that is the lessee of an aircraft terminal
or aircraft gate before the occurrence of a termination
event, then (unless the court orders the trustee to assume
such unexpired leases within 5 days after the termination
event), at the option of the airport operator, such lease is
deemed rejected 5 days after the occurrence of a termina-
tion event and the trustee shall immediately surrender
possession of the premises to the airport operator; except
that the lease shall not be deemed to be rejected unless
the airport operator first waives the right to damages
So Ee er
Neat llth a is
™ LS
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related to the rejection. In the event that the lease is
deemed to be rejected under this paragraph, the airport
operator shall provide the affected air carrier adequate
opportunity after the surrender of the premises to remove
the fixtures and equipment installed by the affected air
carrier.
(6) For the purpose of paragraph (5) of this subsec-
tion and paragraph (f)(1) of this section, the occurrence of
a termination event means, with respect to a debtor
which is an affected air carrier that is the lessee of an
aircraft terminal or aircraft gate -
(A) the entry under section 301 or 302 of
this title of an order for relief under chapter 7 of
this title;
(B) the conversion of a case under any chap-
ter of this title to a case under chapter 7 of this
title; or
(C) the granting of relief from the stay pro-
vided under section 362(a) of this title with
respect to aircraft, aircraft engines, propellers,
appliances, or spare parts, as defined in section
40102(a) of title 49, except for property of the
debtor found by the court not to be necessary to
an effective reorganization.
(7) Any order entered by the court pursuant to
paragraph (4) extending the period within which the
trustee of an affected air carrier must assume or reject an
unexpired lease of nonresidential real property shall be
without prejudice to -
(A) the right of the trustee to seek further
extensions within such additional time period
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granted by the court pursuant to paragraph (4);
and
(B) the right of any lessor or any other party
in interest to request, at any time, a shortening
or termination of the period within which the
trustee must assume or reject an unexpired lease
of nonresidential real property.
(8) The burden of proof for establishing cause for an
extension by an affected air carrier under paragraph (4)
or the maintenance of a previously granted extension
under paragraph (7)(A) and (B) shall at all times remain
with the trustee.
(9) For purposes of determining cause under para-
graph (7) with respect to an unexpired lease of nonresi-
dential real property between the debtor that is an
affected air carrier and an airport operator under which
such debtor is the lessee of an airport terminal or an
airport gate, the court shall consider, among other rele- |
vant factors, whether substantial harm will result to the |
airport operator or airline passengers as a result of the
extension or the maintenance of a previously granted
extension. In making the determination of substantial
harm, the court shall consider, among other relevant fac-
tors, the level of actual use of the terminals or gates
which are the subject of the lease, the public interest in
actual use of such terminals or gates, the existence of
competing demands for the use of such terminals or
gates, the effect of the court’s extension or termination of
the period of time to assume or reject the lease on such
debtor's ability to successfully reorganize under chapter
11 of this title, and whether the trustee of the affected air
nme re menor
ee ee ee ee ee
A71
carrier is capable of continuing to comply with its obliga-
tions under section 365(d)(3) of this title.
(10) The trustee shall timely perform all of the obli-
gations of the debtor, except those specified in section
365(b)(2), first arising from or after 60 days after the
order for relief in a case under chapter 11 of this title
under an unexpired lease of personal property (other
than personal property leased to an individual primarily
for personal, family, or household purposes), until such
lease is assumed or rejected notwithstanding section
503(b)(1) of this title, unless the court, after notice and a
hearing and based on the equities of the case, orders
otherwise with respect to the obligations or timely perfor-
mance thereof. This subsection shall not be deemed to
affect the trustee’s obligations under the provisions of
subsection (b) or (f). Acceptance of any such performance
does not constitute waiver or relinquishment of the les-
sor’s rights under such lease or under this title.
(e)(1) Notwithstanding a provision in an executory
contract or unexpired lease, or in applicable law, an exec-
utory contract or unexpired lease of the debtor may not
be terminated or modified, and any right or obligation
under such contract or lease may not be terminated or
modified, at any time after the commencement of the case
solely because of a provision in such contract or lease that
is conditioned on -
(A) the insolvency or financial condition of
the debtor at any time before the closing of the
case;
(B) the commencement of a case under this
title; or
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(C) the appointment of or taking possession
by a trustee in a case under this title or a custo-
dian before such commencement.
(2) Paragraph (1) of this subsection does not apply
to an executory contract or unexpired lease of the debtor,
whether or not such contract or lease prohibits or restricts
assignment of rights or delegation of duties, if -
(A)(i) applicable law excuses a party, other
than the debtor, to such contract or lease from
accepting performance from or rendering per-
formance to the trustee or to an assignee of such
contract or lease, whether or not such contract
or lease prohibits or restricts assignment of
rights or delegation of duties; and
(ii) such party does not consent to such
assumption or assignment; or
(B) such contract is a contract to make a
loan, or extend other debts financing or finan-
cial accommodations, to or for the benefit of the
debtor, or to issue a security of the debtor.
(f)(1) Except as provided in subsection (c) of this
section, notwithstanding a provision in an executory con-
tract or unexpired lease of the debtor, or in applicable
law, that prohibits restricts, or conditions the assignment
of such contract or lease, the trustee may assign such
contract or lease under paragraph (2) of this subsection;
except that the trustee may not assign an unexpired lease
of noniesidential real property under which the debtor is
an affected air carrier that is the lessee of an aircraft
terminal or aircraft gate if there has occurred a termina-
tion event.
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(2) The trustee may assign an executory contract or
unexpired lease of the debtor only if -
(A) the trustee assumes such contract or
lease in accordance with the provisions of this
section; and
(B) adequate assurance of future perfor-
mance by the assignee of such contract or lease
is provided, whether or not there has been a
default in such contract or lease.
(3) Notwithstanding a provision in an executory
contract or unexpired lease of the debtor, or in applicable
law that terminates or modifies, or permits a party other
than the debtor to terminate or modify, such contract or
lease or a right or obligation under such contract or lease
on account of an assignment of such contract or lease,
such contract, lease, right, or obligation may not be termi-
nated or modified under such provision because of the
assumption or assignment of such contract or lease by the
trustee.
(g) Except as provided in subsections (h)(2) and
(i)(2) of this section, the rejection of an executory contract
or unexpired lease of the debtor constitutes a breach of
such contract or lease -
(1) if such contract or lease has not been
assumed under this section or under a plan
confirmed under chapter 9, 11, 12 or 13 of this
title, immediately before the date of the filing of
the petition; or
(2) if such contract or lease has been
assumed under this section or under a plan
confirmed under chapter 9, 11, 12, or 13 of this
title -
A74
(A) if before such rejection the case has
not been converted under section 1112,
1208, or 1307 of this title, at the time of such
rejection; or
(B) if before such rejection the case has
been converted under section 1112, 1208, or
1307 of this title —
(i) immediately before the date of
such conversion, if such contract or
lease was assumed before such conver-
sion; or
(ii) at the time of such rejection, if
such contract or lease was assumed
after such conversion.
(h)(1)(A)_ If the trustee rejects an unexpired lease of
real property under which the debtor is the lessor and -
(i) if the rejection by the trustee
amounts to such a breach as would
entitle the lessee to treat such lease as
terminated by virtue of its terms, appli-
cable nonbankruptcy law, or any agree-
ment made by the lessee, then the
lessee under such lease may treat such
lease as terminated by the rejection; or
(ii) if the term of such lease has
commenced, the lessee may retain its
rights under such lease (including
rights such as those relating to the
amount and timing of payment of rent
and other amounts payable by the les-
see, and any right of use, possession,
quiet enjoyment, subletting, assign-
ment, or hypothecation) that are in or
appurtenant to the real property for the
Pe eee ne eee ek Ve a
ee eee Ne PP oe ho a ea aD
A75
balance of the term of such lease and
for any renewal or extension of such
rights to the extent that such rights are
enforceable under applicable non-
bankruptcy law.
(B) If the lessee retains its rights under
subparagraph (A)(ii), the lessee may offset
against the rent reserved under such lease
for the balance of the term after the date of
the rejection of such lease and for the term
of any renewal or extension of such lease,
the value of any damage caused by the non-
performance after the date of such rejection,
of any obligation of the debtor under such
lease, but the lessee shall not have any other
right against the estate or the debtor on
account of any damage occurring after such
date caused by such nonperformance.
(C) The rejection of a lease of real
property in a shopping center with respect
to which the lessee elects to retain its rights
under subparagraph (A)(ii) does not affect
the enforceability under applicable non-
bankruptcy law of any provision in the
lease pertaining to radius, location, use,
exclusivity, or tenant mix or balance.
(D) In this paragraph, “lessee”
includes any successor, assign, or mort-
gagee permitted under the terms of such
lease.
(2)(A) If the irustee rejects a timeshare interest
under a timeshare plan under which the debtor is the
timeshare interest seller and -
(i) if the rejection amounts to such a
breach as would entitle the timeshare
A76
interest purchaser to treat the timeshare
plan as terminated under its terms,
applicable nonbankruptcy law, or any
agreement made by timeshare interest
purchaser, the timeshare interest pur-
chaser under the timeshare plan may
treat the timeshare plan as terminated
by such rejection, or
(ii) if the term of such timeshare
interest has commenced, then the
timeshare interest purchaser may retair.
its rights in such timeshare interest for
the balance of such term and for any
term of renewal or extension of such
timeshare interest to the extent that
such rights are enforceable under appli-
cable nonbankruptcy law.
(B) If the timeshare interest purchaser
retains its rights under subparagraph (A),
such timeshare interest purchaser may off-
set against the moneys due for such
timeshare interest for the balance of the
term after the date of the rejection of such
timeshare interest, and the term of any
renewal or extension of such timeshare
interest, the value of any damage caused by
the nonperformance after the date of such
rejection, of any obligation of the debtor
under such timeshare plan, but the
timeshare interest purchaser shall not have
any right against the estate or the debtor on
account of any damage occurring after such
date caused by such nonperformance.
(i)(1) If the trustee rejects an executory contract of
the debtor for the sale of real property or for the sale of a
timeshare interest under a timeshare plan, under which
A77
the purchaser is in possession, such purchaser may treat
such contract as terminated, or, in the alternative, may
remain in possession of such real property or timeshare
interest.
(2) If such purchaser remains in posses-
sion —
(A) such purchaser shall continue to
make all payments due under such contract,
but may, offset against such payments any
damages occurring after the date of the
rejection of such contract caused by the
nonperformance of any obligation of the
debtor after such date, but such purchaser
does not have any rights against the estate
on account of any damages arising after
such date from such rejection, other than
such offset; and
(B) the trustee shall deliver title to such
purchaser in accordance with the provisions
of such contract, but is relieved of all other
obligations to perform under such contract.
(j) A purchaser that treats an executory contract as
terminated under subsection (i) of this section, or a party
whose e
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