602 B.R. 16
Bankr. E.D. Mich.2019Background
- Debtors (K & D Companies) operated environmental/industrial services; two subsidiaries (K & D Industrial and K & D West) were party to CBAs requiring contributions to Operating Engineers' Local 324 Pension Fund (the Pension Fund).
- Debtors, insolvent and unable to refinance partly because of potential multiemployer "withdrawal liability," filed Chapter 11 to sell assets and orderly liquidate rather than reorganize.
- Debtors scheduled the Pension Fund with a contingent withdrawal-liability claim of $3,369,495 and sought to sell a package of assets to an unrelated stalking-horse bidder (CCI) for $500,000.
- CCI required assurance it would not be exposed to potential withdrawal liability or successor/alter-ego claims; Debtors moved to sell under 11 U.S.C. §§ 363(b) and (f) free and clear of the Pension Fund's asserted claim and for findings that CCI is not a successor or alter ego.
- Pension Fund did not oppose the sale itself but objected to the requested free-and-clear treatment, arguing (1) it did not hold a present claim because withdrawal liability is triggered only upon actual withdrawal, (2) §363(f) covers interests in property (not general unsecured claims), and (3) ERISA policy and §1392(c) prevent relief if a principal purpose is to evade withdrawal liability.
- Bankruptcy court found (on the specific facts: assets sold, operations to cease pre-confirmation) the Pension Fund has a contingent claim under §101(5) and that §363(f) may bar successor/alter-ego withdrawal-liability claims; it overruled the objection and authorized the sale free and clear.
Issues
| Issue | Pension Fund's Argument | Debtors' Argument | Held |
|---|---|---|---|
| Whether Pension Fund holds a "claim" in bankruptcy | No—withdrawal liability does not exist until actual withdrawal | Yes—a contingent "right to payment" exists under MPPAA and §101(5)(A) because withdrawal will occur during the Chapter 11 cases | Held: Pension Fund has a contingent claim under §101(5)(A) given Debtors will withdraw pre-confirmation |
| Whether §363(f) permits sale free and clear of the Pension Fund's claim | No—§363(f) applies to interests in the property (in rem), not unsecured claims; successor liability depends on purchaser's later conduct | Yes—§363(f) can encompass claims and successor/alter-ego risks that "flow from" debtor's ownership/use of assets; §363(f)(5) allows money satisfaction | Held: §363(f) applies; withdrawal-liability claim is an ‘‘interest’’ related to the assets and fits §363(f)(5) framework |
| Whether ERISA/MPPAA public policy should prevent a §363(f) free-and-clear sale | MPPAA's strong policy to protect plans weighs against cutting off withdrawal claims | Bankruptcy Code policy to maximize estate value and attract bidders supports free-and-clear sales; statutes are reconcilable | Held: MPPAA policy does not bar §363(f) relief here; court need not subordinate §363(f) to ERISA policy on these facts |
| Whether the sale should be denied as an attempt to evade/avoid withdrawal liability | Sale is aimed at evasion; §1392(c) could apply if evasion is a principal purpose | No evidence of bad faith or improper transfers; legitimate liquidation effort to maximize value | Held: No evidence of evasion or bad faith; sale not denied on that basis |
Key Cases Cited
- CPT Holdings, Inc. v. Indus. & Allied Employees Union Pension Plan, Local 73, 162 F.3d 405 (6th Cir.) (withdrawal liability not a claim prior to withdrawal where debtor continued operations and plan assumed CBA)
- Alfes v. Educ. Credit Mgmt. Corp., 709 F.3d 631 (6th Cir.) (contingent claims qualify as "claims" under §101(5))
- Al Perry Enters., Inc. v. Appalachian Fuels LLC, 503 F.3d 538 (6th Cir.) (§363(f) sale can extinguish claims against purchaser unless assumed)
- Motors Liquidation Co. v. JPMorgan Chase Bank, N.A., 829 F.3d 135 (2d Cir.) (§363(f) can cover successor-liability claims that "flow from" ownership/use of sold assets)
- Wolverine Radio Co., 930 F.2d 1132 (6th Cir.) (§363(f) analysis distinguishing experience-rating obligations from "interests in property")
- Trustees of Operating Eng’rs Local 324 Pension Fund v. Bourdow Contracting, Inc., 919 F.3d 368 (6th Cir.) (recognizing potential alter-ego imposition of withdrawal liability)