Pritchard v. Pension Benefit

United States Court of Appeals,
Fifth Circuit.
No. 93-1681.
In the Matter of ESCO MANUFACTURING, CO., Debtor.
PENSION BENEFIT GUARANTEE CORP., Appellee,
v.
Gregg PRITCHARD, Trustee in Bankruptcy For Esco Manufacturing,
Co., Appellant.
Sept. 29, 1994.
Appeal from the United States District Court for the Northern
District of Texas.
Before GOLDBERG, HIGGINBOTHAM and EMILIO M. GARZA, Circuit Judges.
GOLDBERG, Circuit Judge:
This case brings to the fore the interrelationship between the
bankruptcy laws protecting debtors1 and the pension laws protecting
pension plan participants.2 Our analysis of the independent
existence and cross fertilization of these two major Congressional
enactments leads us to prohibit any attempt to utilize the
bankruptcy laws to escape ERISA's protection of pension plan
participants. We hold that a Chapter 7 bankruptcy Trustee remains
subject to the debtor's statutory obligation to terminate its
pension plan in accordance with the specific procedures established
by ERISA. In so complying, we find that the Trustee does not
exceed the limits of proper trustee activity set out by the
1
Title 11 of the Bankruptcy Code, 11 U.S.C. §§ 101-1501.
2
Title IV of the Employee Retirement Income Security Act
("ERISA"), 29 U.S.C. §§ 1301-1461.
1
Bankruptcy Code.
I.
Esco Corporation ("Esco" or the "Debtor") filed for Chapter 11
bankruptcy protection in April of 1990. In January of 1991, Esco's
mortgage foreclosed on the Esco factory and the company ceased all
operations. In June of the same year, the case was converted into
a Chapter 7 liquidation and the bankruptcy court appointed Gregg
Pritchard as Trustee of the Esco estate.
Previously, in January of 1976, Esco had established a pension
plan for its employees. In 1990, when the corporation filed for
bankruptcy, this plan reported assets of $527,557 but also reported
liabilities of approximately $748,468 in the form of vested
benefits owing to employees.3 At no time during the bankruptcy
proceedings did the Debtor or the Trustee notify the Pension
Benefit Guarantee Corporation ("PBGC"), the government corporation
charged with protecting pension benefits, of Esco's bankruptcy as
is required by ERISA, 29 U.S.C. § 1343(b)(9). The PBGC was
eventually notified of the bankruptcy, however, when Calloway
Pension Services, a professional actuary serving as a consultant to
the plan, sought help when the pension benefits were not paid by
Esco.
In October of 1991, the Chapter 7 trustee, Pritchard, filed a
Notice of Intention to Abandon the pension plan arguing that the
plan was of little value to the estate and that the plan should be
3
A proof of claim has been filed by the Pension Benefit
Guarantee Corporation against the bankruptcy estate calculating
the deficiency at $576,400.
2
abandoned as burdensome under the authority of 11 U.S.C. § 554(a).4
The PBGC filed an objection, asserting that the Trustee was
prohibited from abandoning the estate's statutory obligations to
the pension plan under Title IV of ERISA.5 The conflict that here
arose between the parties illuminates the confrontation between the
pension and bankruptcy statutes central to the resolution of this
controversy.
The bankruptcy court granted the Trustee's motion in February
of 1992, holding that the plan was not property of the estate and
that even if it was later deemed to be so, any obligations held by
the Trustee could be abandoned. The PBGC appealed this decision to
the district court. By order entered May 27, 1993, the district
court, although agreeing that the pension plan was not part of the
debtor's estate, concluded that the Title IV obligations of the
plan could not be abandoned. The court then held that the ERISA
termination obligations are "claims" against the estate that the
Trustee is obligated to resolve. 11 U.S.C. §§ 101(5), 704(1). The
district court, therefore, required the Trustee to terminate the
plan so that the PBGC could fulfill its Title IV insurance
4
The Trustee also noticed his intention to abandon the
employee profit sharing plan. The decision of the district court
granting the Trustee's motion to do so is not an issue in this
appeal.
5
Title IV imposes various obligations on the employer and
plan administrator which must be fulfilled in order to complete a
successful termination of an ERISA-covered pension plan. They
include a duty to terminate the plan in accordance with this
section, to notify the PBGC after the filing of bankruptcy, to
notify all affected parties of the impending termination, and to
comply with various reporting requirements as to the net assets
and liabilities of the plan. 29 U.S.C. § 1341.
3
obligations to the plan participants and beneficiaries. Pritchard
appeals that decision.
II.
First, we provide a little background. Title IV of ERISA
protects the pension benefits of workers enrolled in ERISA-covered
plans through the administration of the PBGC, a government
corporation modeled after the Federal Deposit Insurance
Corporation.6 See Pension Benefit Guaranty Corp. v. LTV Corp., 496
U.S. 633, 636-38, 110 S. Ct. 2668, 2671, 110 L. Ed. 2d 579 (1990).
When a plan covered by Title IV terminates and has insufficient
assets to pay promised pension obligations, the PBGC steps in as
trustee of the plan and guarantees payment of certain benefits to
the plan participants.7 Id. The PBGC uses the existing plan
assets to cover as much as it can of the benefit obligations
asserted against the plan and then adds its own funds to insure
payment of the remaining vested benefits. Id.; 29 U.S.C. §§ 1322,
1344. The PBGC finances this insurance program for underfunded
plans by requiring employers that maintain ongoing pension plans to
pay annual premiums. 29 U.S.C. §§ 1306-07.8
Plans may either be terminated voluntarily by an employer or
6
The PBGC insures the pension benefits of 40 million
American employees in 85,000 private pension plans. Daniel
Keating, Chapter 11's New Ten-Ton Monster: The PBGC and
Bankruptcy, 77 Minn.L.Rev. 803, 806-807 (1993).
7
The PBGC covers only those benefits that have vested. 29
U.S.C. § 1322.
8
The PBGC's insurance fund is also financed through
recoveries garnered from employers who terminate underfunded
plans. 29 U.S.C. § 1345.
4
involuntarily by the PBGC. LTV, 496 U.S. at 638-40, 110 S.Ct. at
2672; 29 U.S.C. §§ 1341-42. The employer may voluntarily
terminate a plan in two ways. If the employer has sufficient
assets to pay all of the plan's benefit commitments, that employer
may terminate the plan without implicating PBGC insurance
responsibilities. This is called a "standard" termination. Id.
If the plan's assets are not sufficient to pay all of the benefits
owed and thus the termination will implicate the PBGC's insurance
function, the employer must demonstrate that it is in financial
"distress" as defined in 29 U.S.C. § 1341(c) before it may
terminate the plan. Resort to Chapter 7 liquidation proceedings is
one way that the employer can demonstrate financial "distress". 29
U.S.C. § 1341(c)(2)(B)(i). Involuntary terminations are initiated
by the PBGC who may petition a district court for the appropriate
declarations. 29 U.S.C. § 1342.
The vital question in the case before us today is whether the
Trustee has an obligation to execute the relatively simple task of
terminating Esco's pension plan and thereby activating the PBGC's
many responsibilities. The synergistic relationship between the
bankruptcy estate and the PBGC in protecting the beneficiaries of
the pension plan is existential and someone must have the right and
the power to energize it. In this way, Title IV of ERISA can
perform its central role in protecting the financial health of many
of our nation's employees as they enter retirement.
III.
In this case we must address whether a bankruptcy trustee can
5
be compelled to take control of and terminate a debtor's pension
plan in order to allow the PBGC to assume the various
administrative and financial obligations necessary to protecting
the plan beneficiaries. This controversy requires us to probe the
relationship between the Bankruptcy Code and ERISA. Esco, the
original sponsor of the plan, is in Chapter 7 bankruptcy. The
attempt by the Trustee to abandon the plan forces us to decide
whether the responsibility of terminating the plan may be placed
upon the bankruptcy trustee when the plan assets, by all
admissions, are separate and apart from the bankruptcy estate. We
find that the Chapter 7 liquidation of an employer does not
dissipate the estate's responsibility to its former employees and
that the trustee remains responsible for carrying out the
termination obligations.9
Pritchard argues that as bankruptcy trustee, he has narrowly
circumscribed duties that do not encompass the administrative
responsibilities that the PBGC wishes to impose. Further,
Pritchard asserts that, as Chapter 7 trustee, he owes his
allegiance to the bankruptcy estate alone and cannot be made
responsible to third parties such as former employees who will be
receiving pension benefits under the bankrupt company's pension
plan. Any obligation to terminate the pension plan would, he
argues, either exceed his job description as trustee or infringe on
his primary obligation to the bankruptcy estate and its creditors.
The PBGC counters that the filing of a bankruptcy petition
9
See supra, note 5 for an explanation of these obligations.
6
does not suspend the obligations imposed by ERISA, including the
responsibility to terminate a pension plan prior to the PBGC's
intervention. We find this to be the far more weighty concern, and
the one most easily supported by the case law. ERISA speaks to the
specific subject of pension plans and tells trustees and employers
that termination of a plan at the onset of bankruptcy is essential
to the PBGC's accomplishment of its obligations.
The PBGC is not a "brooding omnipresence in the sky." It
exists as a real, operating agency with responsibility over the
pension benefits of millions of workers. The PBGC, to perform its
essential functions, must be advised by the entity in the primary
position to do so, that the pension plan will require the
invocation of the PBGC's insurance responsibilities. We therefore
conclude that the bankruptcy trustee remains responsible for
complying with the ERISA obligations which were previously part of
the debtor's ongoing corporate concern.
A pension plan must be terminated prior to the assumption of
insurance responsibilities by the PBGC. Congress has expressly
provided that the procedures set out in ERISA are the sole and
exclusive means for terminating a pension plan. 29 U.S.C. §
1341(a)(1)10; see also H.R.Rep. No. 300, 99th Cong., 1st Sess. 289
10
29 U.S.C. § 1341(a)(1) provides:
(1) Exclusive means of plan termination
Except in the case of a termination for which
proceedings are otherwise instituted by the corporation
as provided in section 1342 of this title, a
single-employer plan may be terminated only in a
standard termination under subsection (b) of this
7
(1985), reprinted in 1986 U.S.C.C.A.N. 756, 940 ("[T]he Committee
intends that ERISA provide the sole and exclusive means under which
a qualified pension plan may be terminated."). We therefore cannot
allow the bankruptcy abandonment procedures to be used to concoct
an alternative method of terminating pension plans. The
responsibility for terminating the pension plan does not evaporate
after the bankruptcy of the employer and the placement of the
estate in Chapter 7 liquidation proceedings. A company cannot
simply file for bankruptcy and abandon a pension plan—nor the
pension rights of its former employees—without meeting ERISA
obligations for administering and terminating the plan. See e.g.,
supra, LTV v. PBGC, 496 U.S. at 655-57, 110 S.Ct. at 2681
(upholding PGBC's ban on "follow-on" plans in which corporations
abandon their pension plan obligations in order to collect PBGC
insurance and then commence a new pension plan arrangement
identical to the first but without the unpaid liabilities).
In 1986, Congress added the "exclusive means of termination"
provision to Title IV and reaffirmed its intention that the ERISA
provisions pertaining to plan termination should apply to a
debtor's bankruptcy estate.11 In passing this legislation, Congress
sought to ensure that the commencement of Chapter 7 proceedings
section or a distress termination under subsection (c)
of this section.
11
The Single-Employer Pension Plan Amendment Act of 1986,
P.L. 99-272, 100 Stat. 237 (1986) ("SEPPAA").
8
would not wipe out the debtor's pension obligations.12 We cannot
give credence to Pritchard's assertion, therefore, that the plan
sponsor's bankruptcy estate has no further obligation with respect
to the pension plan.13 In enacting SEPPAA, Congress made clear its
intention that a pension plan may not be deserted by an employer
except through certain defined procedures, even if that employer
has filed for the protection of federal bankruptcy law.
Pritchard responds that had Congress intended a bankruptcy
trustee to perform the sort of obligations that the PBGC wishes to
impose in the instant case, it would have included the
administrative duty of terminating a debtor's pension plan among
the responsibilities which are specifically set out in the
Bankruptcy Code, 11 U.S.C. § 704. Section 704 of the Bankruptcy
Code establishes the various statutory duties of a bankruptcy
12
This exclusive means provision was enacted in response to
an earlier bankruptcy court decision that allowed the bankruptcy
estate to reject a pension plan as an executory contract. In re
Bastian Co., 45 B.R. 717 (Bankr.W.D.N.Y.1985). The legislative
history of SEPPAA explain that "a recent case before the U.S.
Bankruptcy Court for the Western District of New York, In re
Bastion Company, Inc. (No. 83-21071, Jan. 16, 1985), which held
that ERISA does not impair other Federal law, and therefore, a
pension plan can be rejected as an executory contract, was
incorrectly decided." H.R.Rep. No. 300, 99th Cong., 1st Sess.
289 (1985), reprinted in 1986 U.S.C.C.A.N. 756, 940.
13
Indeed, 29 U.S.C. § 1343(b)(9) of ERISA obligates the
employer to notify the PBGC when any "event occurs which the
corporation determines may be indicative of a need to terminate
the plan." In addition, 29 U.S.C. § 1342(e) recognizes the
capacity of the PBGC to maintain proceedings intended to
involuntarily terminate a plan notwithstanding the pendency "in
the same or any other court of any bankruptcy." The conclusion
is obvious that Congress has, through these provisions, asserted
the continuing existence of a bankruptcy estate's ERISA
obligations once a corporation has filed for bankruptcy.
9
trustee and Pritchard points out that taking control of and
terminating a debtor's pension plan is not among the enumerated
obligations. 11 U.S.C. § 704. Additionally, because the pension
plan assets are not property of the debtor's estate, 11 U.S.C. §
541,14 as Trustee of that estate, Pritchard asserts that he can have
no authority over the plan. A bankruptcy trustee is empowered, in
Pritchard's view, only to collect and liquidate the assets of the
estate as quickly as is possible. See e.g., In re Riverside-Linden
Investment Co., 925 F.2d 320, 322 (9th Cir.1991).
Pritchard finds further fault with the district court's order
directing him to terminate the pension plan in that it requires him
to take actions on behalf of third parties. Property of the estate
does not include "any power that the debtor may exercise solely for
the benefit of an entity other than the debtor," 11 U.S.C. §
541(b)(1), and therefore, Pritchard argues that he would violate
his fiduciary duties as Trustee if he acted to terminate the plan
because the plan is of no value to the estate and termination would
solely benefit the plan participants.
Pritchard's arguments, when held up to scrutiny, fail to
convince us that the district court acted improperly in compelling
the Trustee to take control of and terminate the Esco pension plan.
We find that the duties imposed by the Bankruptcy Code include the
obligation to perform any termination obligations imposed by ERISA
and that by doing so the trustee is indeed acting in the service of
14
The estate is comprised of "all legal or equitable
interests of the debtor in property as of the commencement of the
case." 11 U.S.C. § 541(a)(1).
10
the best interests of the estate. Similarly, such action does not
violate the trustee's fiduciary obligation to act only in the
interest of consolidating the debtor's assets and liabilities and
closing the estate. To the contrary, terminating the pension plan
directly promotes these aims.
Article XII of the Esco pension plan provides that the
sponsor, Esco, has expressly reserved for itself the right to
terminate the plan. Because Esco is the entity empowered to
terminate the plan, it was required to do so when the company
entered bankruptcy and became unable to continue funding the plan.
However, Esco, has now been taken over by the Chapter 7 Trustee.
Section 402(a) of ERISA, 29 U.S.C. § 1102(a)(1), requires that
a pension plan specify one or more named fiduciaries who have
authority to manage the operation and administration of the plan.
If, however, an ERISA administrator is not named under the plan, 29
U.S.C. §§ 1002(16)(A) and 1301(a)(1) provide that the plan sponsor
is the administrator by operation of law. Therefore, the fact that
the committee designated to administer the Esco plan is not
currently functioning or may never have been put in place, as
alleged by the PBGC, does not impact the ability of the Trustee to
terminate the plan.15
Pritchard, as Esco's bankruptcy Trustee, assumes the position
15
Pritchard argues that the bankruptcy court failed to make
a factual finding that no plan administrator exists. The
existence, vel non, of a committee appointed to administer the
plan does not, however, impact Esco's responsibility as the plan
sponsor for terminating the plan under Article XII since that
section specifically vests this power with Esco itself.
11
of the debtor as to that debtor's many obligations. 11 U.S.C. §
541. Previous courts have held that statutory obligations that
bind the debtor will subsequently bind the bankruptcy trustee.
Hays and Co. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 885
F.2d 1149, 1154-62 (3rd Cir.1989). The Hays court determined that
the bankruptcy trustee must comply with the statutorily imposed
obligation to arbitrate under the Federal Arbitration Act, 9 U.S.C.
§§ 1-14, because the trustee "stands in the shoes of the debtor for
purposes of the arbitration clause and that the trustee-plaintiff
is bound by the clause to the same extent as would be the debtor."
Id. We believe that obligations originating out of ERISA are
similarly binding on the bankruptcy Trustee in this case.
Pritchard claims that he cannot be bound by Esco's ERISA
responsibilities because it would contravene his fiduciary duties
to the estate and that the Bankruptcy Code excludes from the
bankruptcy estate powers "that the debtor may exercise solely for
the benefit of an entity other than the debtor." 11 U.S.C. §
541(b)(1). He claims that executing the termination of the pension
plan benefits the pension plan participants alone. This argument
ignores, however, the important ways in which the power to
terminate a pension plan benefits the bankruptcy estate.
The debtor is entitled to any surplus funds where, upon the
termination of the plan, a plan's assets exceed the liabilities
owed to plan participants. 29 U.S.C. § 1344. In the instant case,
although no surplus assets exist to revert to the Esco estate, the
exercise of the authority to terminate the plan will nevertheless
12
benefit that estate. Indeed, the power to terminate the Esco
pension plan benefits the bankruptcy estate in various ways.
Underfunded pension plans such as the one at issue here must be
terminated in order to cut off further escalation of liabilities in
the form of benefit accruals and vesting. In this way, the Trustee
can fix the liability of the debtor's estate under Title IV of
ERISA requiring employers to compensate the PBGC for any
underfunding by ceasing the continued amassing of benefits by
participants. 29 U.S.C. § 1362(b)(1)(A). Moreover, the plan
sponsor's annual contributions to the plan continue to accrue under
29 U.S.C. § 1082 until the plan is terminated pursuant to Title IV.
The bankruptcy estate, therefore, greatly benefits by the trustee's
power to terminate the debtor's pension plan, even where the plan
does not have a revertible surplus.16
The Bankruptcy Code and recent case law have imposed various
duties on bankruptcy trustees. These duties provide support for
the trustee's execution of the required termination tasks. A
trustee has a duty to preserve the estate's assets in order to
maintain the most advantageous liquidation of the estate for the
16
We also note that even though the employer (or bankruptcy
trustee) makes the decision to terminate the pension plan
considering factors beyond the best interests of the plan and its
participants does not mean that the decision violates the
employer's (or trustee's) fiduciary's responsibility to those
participants. The decision to terminate is an executive decision
in which the decisionmaker is not functioning as a fiduciary.
Drennan v. General Motors Corp., 977 F.2d 246, 251 (6th
Cir.1992), cert. denied, --- U.S. ----, 113 S. Ct. 2416, 124
L. Ed. 2d 639 (1993); Payonk v. HMW Industries, Inc., 883 F.2d
221, 229 (3rd Cir.1989); Amalgamated Clothing & Textile Workers
Union v. Murdock, 861 F.2d 1406, 1419 (9th Cir.1988).
13
interest of its creditors. See In re Rigden, 795 F.2d 727, 730
(9th Cir.1986) (bankruptcy trustee has "a fiduciary obligation to
conserve the assets of the estate and to maximize distribution to
creditors"); In re Melenyzer, 140 B.R. 143, 154
(Bankr.W.D.Tex.1992) (same). The trustee must also "close such
estate as expeditiously as is compatible with the best interests of
parties in interest." 11 U.S.C. § 704; see also Yadkin Valley
Bank & Trust Co. v. McGee (In re Hutchinson), 5 F.3d 750, 753 (4th
Cir.1993) ("the duty to close the estate expeditiously is the
trustee's "main duty' and "overriding responsibility.' ")
(citations removed).
As set out above, the estate continues to accrue liabilities
until the plan is terminated. The Esco Trustee is therefore acting
within the authority provided by his duty to preserve the assets of
the estate by terminating the pension plan and halting the
continued accrual of benefits. Furthermore, terminating the
pension plan obligations of the debtor fulfills the Trustee's duty
to expeditiously close the estate. In sum, the duties set out
under 11 U.S.C. § 704 provide ample support for the imposition on
the Trustee of an obligation to terminate the pension plan.
In carrying out the duties of collecting and liquidating the
assets of the estate and closing that estate as expeditiously as is
appropriate, courts have required bankruptcy trustees to perform a
variety of administrative and statutory tasks. Of note is
Midlantic National Bank v. New Jersey Dep't of Envtl. Protection,
474 U.S. 494, 106 S. Ct. 755, 88 L. Ed. 2d 859 (1986), in which a
14
Chapter 7 trustee was compelled to conform with various health and
safety regulations in administering estate property. The Court
held that the trustee must comply with environmental regulations in
exercising its power to abandon property with serious environmental
problems. Id. at 506, 106 S.Ct. at 762; see also In re
Commonwealth Oil Refining Co., Inc., 805 F.2d 1175, 1185 (5th
Cir.1986), cert. denied, 483 U.S. 1005, 107 S. Ct. 3228, 97 L. Ed. 2d
734 (1987). Similarly, a Chapter 7 trustee is obligated to file
tax returns in the course of administering the bankruptcy estate.
Holywell Corp. v. Smith (In re Holywell Corp.), --- U.S. ----, ----
, 112 S. Ct. 1021, 1027, 117 L. Ed. 2d 196 (1992); Tambay Trustee v.
Pizza Pronto, (In re Pizza Pronto), 970 F.2d 783, 784 (11th
Cir.1992); United States v. State Farm Fire & Casualty Co. (In re
Joplin), 882 F.2d 1507, 1511 (10th Cir.1989). The bankruptcy
trustee is also required to abide by any statutorily imposed
obligations to arbitrate disputes. Hays and Co. v. Merrill Lynch,
885 F.2d at 1153-54.17 In light of the various administrative and
statutory obligations imposed upon the bankruptcy trustee in
performing his liquidation responsibilities, we find no obstacle in
compelling Pritchard to comply with ERISA.
Pritchard's refusal to terminate the pension plan leaves a
gaping hole in the statutory protections offered pension plan
participants and beneficiaries. Someone must shoulder the
17
A Chapter 7 trustee has also been held liable for his
failure to have snow cleared from the roof of bankrupt estate's
property. In re Reich, 54 B.R. 995, 1003 (Bankr.E.D.Mich.1985).
We assume the PBGC's claims outweigh the importance of a few
snowflakes.
15
responsibility for terminating the pension plan of an employer that
has entered Chapter 7 liquidation proceedings. The bankruptcy
trustee cannot be allowed to shirk his duties in this regard for if
he is permitted to do so, the consequences for the plan
participants could be severe. For example, in the instant case no
one even bothered to notify the PBGC of the fact that the employer
had stopped funding the pension plan and the participants could
easily have been left entirely without insurance coverage.
If no one can be given the baton for executing an order of
termination, the PBGC's functions would be downsized and the many
participants who rely on the insurance will be left stranded
without their benefits. We must send the message to both employers
and pension plan participants that bankruptcy will not serve as an
instrument for abandoning a corporation's pension obligations. By
abandoning the debtor's pension plan obligations, the Trustee has
attempted to create a separate avenue for terminating a
corporation's ERISA responsibilities without complying with the
specific requirements of that statute. This contravenes Congress'
clearly expressed intention of preserving an employer's ERISA
termination obligations even after that employer enters bankruptcy.
The bankruptcy trustee empowered to liquidate the estate
cannot claim that the Bankruptcy Code denudes the estate of the
many vestments of personhood which the corporation maintained in
its former solvent status. Of great importance among the statutory
obligations is an employer's (or its estate's) responsibility to
its former employees. By imposing the obligation to terminate a
16
pension plan on the bankruptcy Trustee, we can insure that plan
assets are protected during volatile periods of business failure
and liquidation. We believe that recognizing this obligation will
give full effect to ERISA while leaving intact the integrity of the
Bankruptcy Code.
IV.
We conclude that the district court properly determined that
the bankruptcy trustee cannot avoid its obligations to the debtor's
pension plan by abandoning that plan. The administrative
procedures for proper termination of a pension plan must be
complied with, whether by the plan sponsor, or upon his accession
to control of the corporation, the bankruptcy trustee.
For the foregoing reasons, the order of the district court is
AFFIRMED.
EMILIO M. GARZA, Circuit Judge, dissenting:
Although I agree "that bankruptcy [should] not serve as an
instrument for abandoning a corporation's pension obligations," I
disagree that we should "[impose] the obligation to terminate a
pension plan on the bankruptcy trustee." Neither ERISA nor the
Bankruptcy Code explicitly contemplates the transfer of such ERISA
obligations to the bankruptcy trustee, see 29 U.S.C. § 1341 and 11
U.S.C. § 704, and I question whether this Court has the authority
to judicially legislate such a solution. Notwithstanding that I
agree that the termination requirements under ERISA do not dissolve
upon bankruptcy, neither statutory authority nor case law shifts
that responsibility from the debtor to the bankruptcy trustee.
17
Moreover, the authority cited by the majority to support imposing
this obligation on the bankruptcy trustee does not fit the
circumstances of this case. Finally, ERISA itself offers an
alternative mechanism by which the PBGC itself can terminate a
pension plan. For these reasons, I respectfully dissent.
A bankruptcy trustee can exercise only those powers granted by
the Bankruptcy Code. See In re Benny, 29 B.R. 754, 760
(N.D.Cal.1983) ("The trustee is a creature of statute and has only
those powers conferred thereby."). Under the Code, a Chapter 7
trustee's powers extend only over property of the estate. See In
re Ozark Restaurant Equip. Co., 816 F.2d 1222, 1228-29 (8th Cir.)
("[T]here is nothing in ... the liquidation framework of the Code
authorizing a Chapter 7 trustee to collect money not owing to the
estate."), cert. denied, 484 U.S. 848, 108 S. Ct. 147, 98 L. Ed. 2d
102 (1987). Here, the trustee does not assert that the employer
should be able to "desert" its obligations under the plan. Rather,
he argues that this obligation still belongs to the employer, and
the trustee has no power to assume it. I agree. Although ERISA
imposes the obligation to terminate on the employer,1 bankruptcy
law controls whether that obligation becomes part of the estate and
part of the trustee's duties. When a debtor files bankruptcy, an
1
Although ERISA's references to the employer' s duties are
numerous, nowhere does ERISA refer to the bankruptcy trustee or
any relationship the trustee may have to a debtor's plan.
Accordingly, I do not find the majority's conclusion as to
Congress' intent "obvious." See slip op. at 6639 & n. 13.
18
estate is created.2 The bankruptcy estate is distinct from the
debtor. See In re Doemling, 127 B.R. 954, 955 (W.D.Pa.1991) ("The
most glaring problem in the ... analysis is its failure to
recognize the distinction between the debtors and the estate....
The debtors and the estate are not interchangeable.").3
Consequently, the Code does not impose all the debtor's obligations
on the trustee. Indeed, it clearly excludes certain obligations
from the estate and hence from the trustee's powers.4 Unless the
obligation to terminate a pension plan is covered by section 541,
it is not part of the estate.
The majority gives examples of instances in which a bankruptcy
trustee has administered a debtor's pension plan, but all of these
cases are under chapter 11, under which the trustee has the power
to operate the debtor's business, a power and duty not within the
scope of a chapter 7 trustee, unless specifically authorized. The
duties of a chapter 7 and chapter 11 trustee differ. 11 U.S.C. §§
2
Section 541 defines the scope and contents of that estate.
"The commencement of a [bankruptcy] case ... creates an estate.
Such estate is comprised of all the following property ...: (1)
Except as provided in subsections (b) and (c)(2) of this section,
all legal or equitable interests of the debtor in property...."
11 U.S.C. § 541 (1988).
3
See also In re Nevin, 135 B.R. 652 (Bankr.D.Hawaii 1991)
(limiting trustee's obligation to file tax returns only for the
estate, not for the debtors). For example, the majority confuses
the concept of the bankruptcy estate with that of the debtor by
stating that the estate has "former employees." See slip op. at
6638 ("the estate's responsibility to its former employees"). A
bankruptcy estate has no former employees; only the debtor does.
4
"Property of the estate does not include—(1) any power that
the debtor may exercise solely for the benefit of an entity other
than the debtor." 11 U.S.C. § 541(b) (1988).
19
704, 1106 (1988).5 The goal of chapter 7 is liquidation, and that
of chapter 11 is reorganization and continuation of the debtor's
business. Chapter 11 duties are not applicable to a chapter 7
trustee; consequently, the majority's cases are inapplicable to
this situation. Pritchard has not been authorized to operate Esco;
accordingly, his duties are limited to those enumerated under
section 704 regarding property of the chapter 7 estate.6
The ERISA Plan is not property of the estate. See Patterson
v. Shumate, --- U.S. ----, ----, 112 S. Ct. 2242, 2250, 119 L. Ed. 2d
519 (1992) (excluding from the bankruptcy estate a debtor's
interest in an ERISA plan). Moreover, the district court held that
the Plan itself, not merely its assets, was not property of the
estate. This arguably includes the right to terminate the Plan.
Assuming that the district court's order only covered the Plan
assets, this still leaves the question of whether the power to
terminate, standing alone, is property of the estate.7 The parties
5
ERISA itself recognizes differences between chapter 7 and
chapter 11 regarding necessary distress criteria. Section
1341(c)(2)(B)(ii) contemplates and requires further involvement
of the debtor and bankruptcy court in the termination proceeding
after the bankruptcy filing. Section 1341(c)(2)(B)(i) only
requires filing of or conversion to chapter 7. See 29 U.S. §
1341(c)(2)(B) (1988 & Supp. V 1993); 29 C.F.R. § 2616.3 (1993).
6
The majority attempts to find authority in § 704 for
imposing on the bankruptcy trustee the duty to terminate the
plan. See slip op. at 6641-42 ("[T]he duties set out under 11
U.S.C. § 704 provide ample support...."). If a duty does not
pertain to property of the estate, however, it cannot fit within
§ 704. Consequently, the majority's dependence on § 704 fails.
7
The majority does not specifically hold that the obligation
to terminate is property of the estate. Nonetheless, it states
that the bankruptcy trustee is attempting to "abandon" its
obligations. See slip op. at 6638-39 ("cannot allow the
20
have not cited, nor have I found, any case law characterizing a
bare obligation as property. The administrative obligations cited
by the majority all refer to obligations attached to property of
the estate.8 Neither have the parties cited, nor have I found, any
case law imposing an administrative obligation for non-estate
property on a bankruptcy trustee. The Hays case cited by the
majority imposed the obligation to arbitrate on the trustee only
for claims "derived from the rights of the debtor under section
541." See Hays & Co. v. Merrill Lynch, Pierce, Fenner & Smith,
Inc., 885 F.2d 1149, 1154 (3d Cir.1989). Because the plan is not
property of the estate, an obligation such as termination is not
derived under section 541. Indeed, Hays refused to impose the
obligation to arbitrate on claims that were "not derivative of the
bankrupt." 885 F.2d at 1155.
The majority also holds that the power to terminate would not
be excluded by section 541(b)(1) as an interest exercised "solely
bankruptcy abandonment procedures to be used"), 6642 ("abandoning
the debtor's pension plan obligations"), 6643 ("abandoning that
plan"). Unless an item is property of the estate, however, there
is nothing for the trustee to abandon. See 11 U.S.C. § 554
(1988) ("A trustee may abandon property of the estate.").
8
See Midlantic Nat'l Bank v. New Jersey Dep't of Envt'l
Protection, 474 U.S. 494, 106 S. Ct. 755, 88 L. Ed. 2d 859 (1986)
(environmental obligations for contaminated property of the
estate); In re Commonwealth Oil Refining Co., 805 F.2d 1175 (5th
Cir.1986) (same), cert. denied, 483 U.S. 1005, 107 S. Ct. 3228, 97
L. Ed. 2d 734 (1987); In re Holywell Corp., --- U.S. ----, 112
S. Ct. 1021, 117 L. Ed. 2d 196 (196) (1992) (tax returns for
property of the estate); Tambay Trustee v. Pizza Pronto (In re
Pizza Pronto), 970 F.2d 783 (11th Cir.1992) (same); United
States v. State Farm Fire & Cas. Co. (In re Joplin), 882 F.2d
1507 (10th Cir.1989) (same); In re Reich, 54 B.R. 995
(Bankr.E.D.Mich.1985) (the snowflakes collapsed the roof of the
estate's property, not the building next door).
21
for the benefit of an entity other than the debtor," because it
would benefit the estate. See slip op. at 6639-41. Again, I
disagree. Assets which have no value to the estate are not
property of the estate and the trustee has no power or duty to
manage them. See In re Peckinpaugh, 50 B.R. 865, 869
(Bankr.N.D.Ohio 1985) (holding that it is against the intent of the
Bankruptcy Code to shift the trustee from a custodial role to that
of an investment manager and that "at no time does [the trustee]
have a duty to manage assets, which have no value to the estate
..."); see also In re Kreiss, 72 B.R. 933, 939
(Bankr.E.D.N.Y.1987) (excluding from the bankruptcy estate an
interest that had no value). The power to terminate the plan does
not benefit the estate. The plan is underfunded, and Esco will not
be able to pay off the plan, even at current value. Exercising a
power to terminate will not add any value to the estate; it will
merely cut off the escalation of the amounts the PBGC must supply
to pay off the plan. It is the PBGC, not the estate, to whom the
right to terminate the plan has value. See Pension Benefit
Guarantee Corporation v. FEL Corp., 798 F. Supp. 239, 242
(D.N.J.1992) (stating that PBGC claims for termination liability
are unsecured claims, unlikely to be paid by an insolvent debtor in
bankruptcy, thereby increasing PBGC's risk).9
9
Moreover, imposing the obligation to administer the plan
during the termination process on the chapter 7 trustee does
require the trustee to act only for the benefit of the plan. See
N.L.R.B. v. Amax Coal Co., 453 U.S. 322, 329, 101 S. Ct. 2789,
2794, 69 L. Ed. 2d 672 (1981) ("[A] trustee bears an unwavering
duty of complete loyalty to the beneficiary of the trust, to the
exclusion of all other parties"), 2796 n. 17 ("[T]he trustees
22
The majority states that "someone must shoulder the
responsibility for terminating the pension plan of an employer that
has entered Chapter 7 liquidation proceedings." I agree, but I do
not see any basis for the bankruptcy trustee to be that "someone."
Moreover, ERISA provides in § 1342 for the PBGC to fulfill that
role.10
Judicial transference of the employer's obligation to
terminate the plan in order to ensure "that plan assets are
protected" is a laudable goal, but ERISA already protects the plan
assets through the PBGC. Imposing this obligation on the
bankruptcy trustee contravenes the limited authority allowed under
the Bankruptcy Code and forces the trustee into a conflict of
must act solely in the interest of the trust beneficiaries").
Additionally, although the majority correctly states that the
"decision to terminate" is not subject to fiduciary restrictions,
see slip op. at 6641 n. 16, the plan administrator does have
fiduciary responsibilities during the process of termination.
See 29 U.S.C. § 1342(d)(3) (1988 & Supp. V 1993) (stating that an
ERISA plan trustee shall be a fiduciary during the process of
terminating a pension plan).
10
ERISA grants authority to the PBGC to terminate the Plan.
First, it authorizes PBGC to institute termination proceedings.
See 29 U.S.C. § 1342(a) (1988 & Supp. V 1993). Second, it
authorizes PBGC to apply to the United States District Court for
the appointment of a trustee to administer the plan, or PBGC may
request appointment itself as trustee. See 29 U.S.C. § 1342(b)
(1988 & Supp. V 1993). Third, it authorizes PBGC to ask the
district court to decree that the plan trustee shall terminate
the plan. See 29 U.S.C. § 1342(c) (1988 & Supp. V 1993); see
also Pension Benefit Guarantee Corporation v. FEL Corp., 798
F. Supp. at 242 (explaining PBGC's authority to terminate a plan
under § 1342). The majority assumes that terminating the Plan is
a "relatively simple task." See slip op. at 6638 ("the
relatively simple task of terminating Esco's pension plan"). If
so, I question why the PBGC has refused to pursue this obvious
solution and its own self-interest.
23
interest that frustrates obligations to the bankruptcy estate.11
Because ERISA already provides an alternative solution that avoids
this conflict, I respectfully dissent.
11
See In re Deena Woolen Mills, 114 F. Supp. 260, 267
(D.Me.1953) ("[A] trustee should be wholly free from all
entangling alliances or associations that might in any way
control his complete independence and responsibility."); In re
10th Avenue Distributors, Inc., 97 B.R. 163, 166
(Bankr.S.D.N.Y.1989) (limiting trustee's standing to recovery of
property to benefit entire estate and "not particular to one
creditor").
24