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 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 WORKERS OF AMERICA 1993 BENEFIT PLAN; and MICHAEL H. HOLLAND, MARTY D. HUDSON, ELLIOT 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-Appellants. ADVENTURE RESOURCES, INCORPORATED, a West Virginia corporation, Plaintiff-Appellant, 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 WORKERS OF AMERICA 1993 BENEFIT PLAN; and MICHAEL H. HOLLAND, MARTY D. HUDSON, ELLIOT 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-Appellees.
Nos. 96-1557, 96-1938
United States Court of Appeals, Fourth Circuit
Argued: August 13, 1997. Decided: February 27, 1998.
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)
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
COUNSEL
ARGUED: Jami Wintz McKeon, MORGAN, LEWIS & BOCKIUS, L.L.P., Philadelphia, Pennsylvania, for Appellants. John Allen Rollins, LEWIS, FRIEDBERG, GLASSER, CASEY & ROLLINS, Charleston, West Virginia, for Aрpellees. ON BRIEF: David W. Allen, Larry D. Newsome, Barbara Locklin-George, Brian H. Benjet, Office of the General Counsel, UMWA HEALTH & RETIREMENT FUNDS, Washington, D.C.; Marilyn L. Baker, MOONEY, GREEN, BAKER, GIBSON & SAINDON, P.C., Washington, D.C., for Appellants.
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 obligations. 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 companies, all of which are affiliates or subsidiаries 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 compa-
In December 1992, twenty of the Adventure companies filed petitions for reorganization under Chapter 11 of the Bankruptcy Code. Among the myriad of Adventure‘s creditors were six trusts established to provide pension, health, disability, and death benefits to mеmbers of the United Mine Workers of America and their dependents. 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 Association.1 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,
Adventure was among the coal operator signatories to the NBCWA of 1988, the collective bargaining agreement in effect at the time of the bankruptcy filing. Pursuant to the 1988 agreement, the employers undertook to ensure the funding of employee pension and health benefits 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.” NATIONAL BITUMINOUS COAL 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 independent business analysis prepared in 1988, Adventure 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 benefit contributions was anything but short-term. Once it had initially defaulted on its payments to the Funds, Adventure continued tо 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.2 As a result of Adventure‘s business “‘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.3
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 viability and priority of the claims filed by three of the trusts. See
Following a period of discovery, the Funds moved for partial summary judgment, contending that virtually all of their claims were entitled to be designated administrative expenses of the bankruptcy estate. See
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
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 cross-appeal incorporates the district court‘s order of June 26, 1996, denying Adventure‘s post-proceeding motions for relief under
We agree with the district court that the Funds’ claims under the Coal Act did not arise until after Adventure had already filed its petitions for reorganization. Inasmuch as these claims are for unpaid taxes, they must be accorded administrative expense priority. Consequently, 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
Thus, where the Chapter 11 debtor has assumed the benefits and obligations of an existing collective bargaining agreement, but does
II.
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.
III.
A.
Congress passed the Coal Act to redress the “looming insolvency” of the trusts that had been established by prior NBCWAs to рrovide 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.
With regard to both new trusts, the Coal Act assessed initial, “pre-funding” contributions against the coal operators who had signed the 1988 NBCWA. See
B.
Section 503 of the Bankruptcy Code provides for the payment of expenses incurred in administering the bankruptcy estate. Allowable administrative expenses commonly 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 accountants. See
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 courts notwithstanding the asserted jurisdictional bars of the Anti-Injunction Act and the Declaratory Judgment Act), cert. denied, 117 S. Ct. 1251 (1997).
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 created.10
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 cоuld have been entitled to collect their first premiums. See note 10, supra;
(“[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 ... [S]ection 9712 of the Coal Act establishes the 1992 Benefit Plan, which also became effective on February 1, 1993.“).
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
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
payments to any entity or person for the purpose of providing or reimbursing payments for retired employees and their spouses and dependents, for medical, surgical, or hospital care benefits, or benefits in the event of sickness, accident, disability, or death under any plan, fund, or program ... maintained or established in whole or in part by the debtor prior to filing a petition commencing a case under this title.
B.
1.
Section 1113, by contrast, affects the treatment of pension benefits in bankruptcy to the extent that those benefits exist pursuant to a collective bargaining agreement. 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.”
The Funds’ position finds some support in the holding of In re Unimet Corp., 842 F.2d 879 (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. at 884. Unimet was therefore ordered to continue paying health and life insurance premiums on behalf of its retirees, pursuant 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 agreement is properly rеjected. By implication, the statute creates 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]ny 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[.]”
The Unimet court explicitly declined to decide whether benefit premiums payable under § 1113 are administrativе 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
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. KING 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 аnd 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 or all administrative expenses of the kind specified 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 instruction from Congress concerning the priority of claims under § 1113 is conspicuously absent from the statute. “[T]here is no indication either from the languаge 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.
We believe that, to the extent possible, Sections 507 and 1113 must be construed harmoniously. It is imperative to the orderly administration of the bankruptcy process that § 507 remains, unless otherwise clearly specified by Congress, the final word on the priorities of competing claims. We can faithfully adhere to that principle in this case without doing violence to the legislative purpose inherent in § 1113:
Section 507 only establishes the priority of [§ 1113] claims[;] it does not affect the underlying obligation ....
Judicial ordering of benefit claims pursuant to § 507 is not equivalent to employer avoidance of obligations under a collective bargaining agreement. The collective bargaining 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 omitted); see Roth American at 957 (“The congressional goal embodied 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.“).
2.
We conclude that a bankruptcy claim arising from the breach of a collective bargaining agreement may be аccorded 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 Pension Trusts are the proverbial round peg.
i.
We begin with the unremarkable premise that unexpired collective bargaining agreements are executory contracts. NLRB v. Bildisco & Bildisco, 465 U.S. 513, 521-22 (1984).14 Their treatment in bankruptcy is, therefore, governed generally by
However, in erecting § 1113‘s substantive and procedural 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 bargaining 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 modification of collective bargaining agreements, and only to that degree supersedes and supplements the provisions in § 365.“) (citing Nоrfolk 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 collective bargaining agreements as executory contracts, made plain in Bildisco, was left undisturbed by Congress.
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 omitted).16 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 compensаte all non-debtor parties for actual pecuniary losses that have resulted therefrom. See
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.
Hence, when Adventure assumed the collective bargaining 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 comply with its legal obligation gаve 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 transformed the prepetition claims of the Pension
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
AFFIRMED IN PART, REVERSED IN PART, AND REMANDED WITH INSTRUCTIONS
Notes
(quoting In re Lorber Industries, 675 F.2d 1062, 1066 (9th Cir. 1982)).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.”
(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).(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]....
(2) Any payment for retiree benefits required to be made befоre 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.
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 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.