Pension Benefit Guaranty Corp. v. Oneida, Ltd., No. 08-2964 (2d Cir. 2009)

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08-2964-bk Pension Benefit Guaranty Corp. v. Oneida, Ltd. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT ------------August Term, 2008 (Argued: January 29, 2009 Decided: April 8, 2009) Docket No. 08-2964-bk - - - - - - - - - - - - - - - - - - - - - - X PENSION BENEFIT GUARANTY CORPORATION, Defendant-Appellant, - against ONEIDA LTD., Plaintiff-Appellee. - - - - - - - - - - - - - - - - - - - - - - X Before: POOLER and LIVINGSTON, Circuit Judges, and RAKOFF, District Judge.* Direct appeal pursuant to 28 U.S.C. § 158(d)(2) from an Order of the United States Bankruptcy Court, Southern District of New York (Allan L. Gropper, United States Bankruptcy Judge), holding that payments due the Pension Benefit Guaranty Corporation as a result of an employer s termination of a pension plan while undergoing reorganization in bankruptcy are contingent pre-petition claims dischargeable in bankruptcy. Concluding that the payment obligation does not arise in any respect until after bankruptcy, we REVERSE and REMAND for further proceedings. JAMES L. EGGEMAN, Assistant Chief Counsel, Pension Benefit Guaranty Corp., Washington, D.C. (Israel Goldowitz, Chief Counsel, Karen L. Morris, Dep. Chief Counsel, Paula J. Connelly, Asst. * The Honorable Jed S. Rakoff, United States District Judge for the Southern District of New York, sitting by designation. -1- 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Chief Counsel, Lawrence F. Landgraff, Erika E. Barnes, Pension Benefit Guaranty Corp., Greg R. Yates, Charles G. Cole, Steptoe & Johnson LLP, New York, New York, on the briefs), for Defendant-Appellant. WILLIAM J.F. ROLL, III, Shearman & Sterling LLP, New York, New York (Jaculin Aaron, Michael H. Torkin, Daniel C. Lewis, Shearman & Sterling LLP, on the brief), for Plaintiff-Appellee. RAKOFF, District Judge. The Pension Benefit Guaranty Corporation ( PBGC ) appeals 15 from a judgment of the Bankruptcy Court, Southern District of New 16 York (Allan L. Gropper, B.J.), which held that Termination 17 Premiums created by the Deficit Reduction Act of 2005, Pub. L. 18 109-171, 120 Stat. 4 (2006), are pre-petition contingent claims 19 dischargeable in bankruptcy.1 20 jointly petitioned for permission to appeal directly from the 21 bankruptcy court pursuant to 28 U.S.C. § 158(d)(2), which grants 22 jurisdiction to the court to hear such an appeal when the 23 question presented involves a question of law as to which there 24 is no controlling decision of the court of appeals for the 25 circuit or of the Supreme Court of the United States, or involves 26 a matter of public importance. On May 12, 2008, the parties On August 29, 2008, the Court 1 The provision of the Deficit Reduction Act creating the Termination Premiums amended the relevant provision of the Employee Retirement Income Security Act ( ERISA ), 29 U.S.C. § 1306. The provision was later permanently enacted as part of the Pension Protection Act of 2006, Pub. L. 109-280, 120 Stat. 780. -2- 1 granted the joint petition, see Pension Benefit Guar. Corp. v. 2 Oneida, Ltd., No. 08-2964-bk (2d Cir. Aug. 29, 2008), and the 3 matter was subsequently briefed and argued. 4 We now reverse. The PBGC is essentially an insurer of pension funds. 5 Termination Premiums paid to the PBGC are designed to help 6 insure employees against the non-payment of pension benefits if 7 the employer terminates a covered fund under specified 8 circumstances. 9 The General Rule is that [i]f there is a termination of a single-employer plan 10 [under specified provisions], there shall be payable to 11 the [PBGC], with respect to each applicable 12-month 12 period, a premium at a rate equal to $1,250 multiplied 13 by the number of individuals who were participants in 14 the plan immediately before the termination date. 15 29 U.S.C. § 1306(a)(7)(A). If, however, the plan is 16 terminated during a bankruptcy reorganization proceeding, 17 then 18 [the General Rule] shall not apply to such plan until 19 the date of the discharge or dismissal of [the 20 employer] in such case. 21 22 Id. § 1306(a)(7)(B). This is called the Special Rule. Under the General Rule, the applicable 12-month period 23 runs from the first month following the month in which the 24 termination date occurs and requires payment for a total of -3- 1 three years. Under the Special Rule, the applicable 12-month 2 period does not commence until the first month following the 3 month which includes the earliest date as of which each 4 [employer] is discharged or dismissed from the bankruptcy 5 proceeding. 6 face of the relevant statutory provisions that [i]n the case of 7 termination due to reorganization, the liability for the 8 [termination] premium does not arise until the employer is 9 discharged from the reorganization proceeding. Id. § 1306(a)(7)(C). It is thus apparent from the Staff of Joint 10 Comm. on Taxation, 109th Cong. Technical Explanation of H.R. 4, 11 the Pension Protection Act of 2006, as Passed by the House on 12 July 28, 2006, and as Considered by the Senate on August 3, 2006 13 (emphasis added). 14 On March 19, 2006, Oneida, a designer and manufacturer of 15 flatware, filed for Chapter 11 reorganization in bankruptcy. See 16 Oneida Ltd. v. Pension Benefit Guar. Corp. (In re Oneida), 383 17 B.R. 29, 33 (Bankr. S.D.N.Y. 2008). 18 terminated one of its single-employer, defined-benefit pension 19 plans, the Oneida Plan, pursuant to a stipulation by the instant 20 parties preserving their respective rights to dispute or enforce 21 payment of Termination Premiums. 22 5 (May 3, 2006). 23 the applicable Termination Premium was an unsecured, pre-petition 24 bankruptcy claim under § 101(5) of the Bankruptcy Code. While in bankruptcy, Oneida Pension Settlement Agreement ¶ Oneida then sought a declaratory judgment that -4- The 1 parties cross-moved for summary judgment and the bankruptcy court 2 issued an opinion on February 27, 2008, and an Amended Order on 3 the Motions for Summary Judgment dated March 21, 2008, from which 4 the PBGC now appeals. 5 review the bankruptcy court s conclusions of law de novo. 6 Shugrue v. Air Line Pilots Ass n. Int l, (In re Ionosphere Clubs, 7 Inc.), 922 F.2d 984, 988 (2d Cir. 1990); Gulf States Exploration 8 Co. v. Manville Forest Prods. Corp. (In re Manville Forest Prods. 9 Corp.), 896 F.2d 1384, 1388 (2d Cir. 1990). 10 With no findings of fact in question, we See The bankruptcy court believed that the Termination Premiums 11 were dischargeable pre-petition claims because of the broad 12 definition accorded the term claim in the bankruptcy context. 13 Specifically, the Bankruptcy Code defines claim as a right to 14 payment, whether or not such right is reduced to judgment, 15 liquidated, unliquidated, fixed, contingent, matured, unmatured, 16 disputed, undisputed, legal, equitable, secured, or unsecured. 17 11 U.S.C. § 101(5)(A). 18 definition to have wide scope. 19 re Chateaugay Corp.), 944 F.2d 997, 1003 (2d Cir. 1991). 20 Congress unquestionably expected this United States v. LTV Corp. (In At the same time, however, the definition s reach is not 21 infinite. LTV Steel Co. v. Shalala (In re Chateaugay Corp.), 53 22 F.3d 478, 497 (2d Cir. 1995). 23 bankruptcy claim depends on (1) whether the claimant possessed a 24 right to payment, and (2) whether that right arose before the Rather, the existence of a valid -5- 1 filing of the petition. 2 Corp., 212 F.3d 144, 151 (2d Cir. 2000). 3 determinations, we look to the substantive non-bankruptcy law 4 that gives rise to the debtor s obligation. 5 Sur. Co. of Am. v. Pac. Gas & Elec. Co., 549 U.S. 443, 450 (2007) 6 (noting that creditors entitlements in bankruptcy arise in the 7 first instance from the underlying substantive law creating the 8 debtor s obligation (internal quotations omitted) (quoting 9 Raleigh v. Ill. Dept. of Revenue, 530 U.S. 15, 20 (2000))). 10 Id. at 497; see also In re Duplan To make these See Travelers Cas. & Here, the substantive, non-bankruptcy law giving rise to 11 Oneida s obligation to pay a Termination Premium is the Special 12 Rule, which unambiguously states that where a pension plan is 13 terminated in connection with an employer s bankruptcy 14 reorganization, the General Rule which creates the PBGC s right 15 to a Termination Premium shall not apply to such plan until 16 the date of the discharge or dismissal of [the employer]. 17 U.S.C. § 1306(a)(7)(B). 18 prevent employers from evading the Termination Premium while 19 seeking reorganization in bankruptcy. 20 a private contract, this language might not control the question 21 of whether a claim existed, Congress may prescribe when a claim 22 will be legally effective for the purposes of the Bankruptcy 23 Code, at least where, as here, the non-bankruptcy statute 24 explicitly discusses how the obligation should be treated in 29 The obvious purpose of this rule is to -6- Although in the context of 1 bankruptcy. 2 This, then, is not a situation, as the bankruptcy court 3 erroneously thought, where an obligation has already been created 4 prior to bankruptcy but is subject to a contingency. 5 Oneida, 383 B.R. at 38-39. 6 pay a Termination Premium on a pension plan that is terminated 7 during the course of the bankruptcy does not even arise until the 8 bankruptcy itself is terminated. 9 claim is construed, it cannot extend to a right to payment that 10 11 See In re Rather, an employer s obligation to No matter how broadly the term does not yet exist under federal law. If there is any ambiguity in the statutory language of the 12 Special Rule and we perceive none it is resolved in the 13 PBGC s favor by the legislative history of the Deficit Reduction 14 Act and the Pension Protection Act. 15 were established in response to mounting financial pressure on 16 the PBGC as a result of an increasing number of pension plan 17 terminations. 18 Congress recognized, however, that its Termination Premium 19 program could be jeopardized by employers seeking bankruptcy The Termination Premiums See H.R. Rep. 109-276, at 345-48 (2005).2 2 The 109th Congress considered the Termination Premiums in two budget reconciliation bills, H.R. 4241, 109th Cong. (2005) and S. 1932, 109th Cong. (2005), and two pension reform bills, H.R. 2830 (Pension Protection Act of 2005), 109th Cong. (2005), (which was the predecessor to the bill passed in 2006), and S. 1783 (Pension Security and Transparency Act), 109th Cong. (2005), (which was later reconciled with H.R. 2830 to include termination premiums). -7- 1 protection. It thus created the Special Rule. 2 The House Committee on Education and the Workforce stated: 3 [T]he Committee believes that a termination premium for 4 former plan sponsors who initiate and complete a 5 distress termination while in bankruptcy is 6 appropriate. 7 as a mechanism for eliminating the burden of an 8 underfunded pension plan; therefore, an additional 9 premium paid to the PBGC to recognize the agency s 10 The bankruptcy courts should not be used assumption of unfunded plan liabilities is reasonable. 11 H.R. Rep. No. 109-276, at 348. 12 Termination Premium as a pre-petition claim would therefore 13 directly thwart Congress s aim in establishing the Special Rule. 14 Treating the Special Rule s For the foregoing reasons, the decision of the bankruptcy 15 court is hereby reversed and the case is remanded for further 16 proceedings consistent with this ruling. -8-

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