Matson v. Alarcon, 651 F.3d 404

LandAmerica established a Severance Benefits Plan in 2004 to aid employees upon termination; an employee qualifies as a participant after termination without cause, signing a severance agreement and release, and meeting other conditions.
Participants receive severance based on tenure, e.g., 2 weeks for 1–2 years, up to 6 weeks for 8–10 years, payable as a lump sum or installments.
The Board retained the right to amend or eliminate the Plan, and in 2008 amended it to reduce weeks of severance based on service.
Between August 2008 and November 2008, within 180 days before LandAmerica filed bankruptcy, claimants were terminated and became Plan participants, but were not paid.
The Trustee argued severance was earned over the entire employment period, so only the pre-petition portion qualified for priority under 11 U.S.C. § 507(a)(4).
LandAmerica filed for bankruptcy on November 26, 2008; claimants asserted priority for severance under § 507(a)(4).

Issue	Plaintiff's Argument	Defendant's Argument	Held
When is severance pay considered earned for priority under § 507(a)(4)?	Matson contends severance is earned over the full employment.	Alarcon and others argue severance is earned only when entitled under the plan.	Earned on the date employees become entitled under the plan.
Does plan structure/amendment affect the timing of earning severance pay?	Trustee's view would have severance earned throughout employment.	Plan design and amendments do not retroactively extend earning.	Plan-based entitlement controls timing; amendments do not extend earning to prior employment.

In re Bateman, 515 F.3d 272 (4th Cir. 2008) (applies de novo review for statutory interpretation issues in bankruptcy)
In re Roth Am., Inc., 975 F.2d 949 (3d Cir. 1992) (administrative expense priority depends on services after bankruptcy)
Straus-Duparquet, Inc. v. Local Union No. 3, 386 F.2d 649 (2d Cir. 1967) (severance pay defined as compensation for losses from termination)