Opinion ID: 711058
Heading Depth: 2
Heading Rank: 2

Heading: Course of the Proceedings in the Bankruptcy Court.

Text: 26 Plaintiff filed its motion for summary judgment with the Bankruptcy Court on August 30, 1994, and Defendant responded on September 16, 1994. On October 25, 1994, the parties appeared on Plaintiff's motion before the Honorable Richard L. Bohanon, United States Bankruptcy Judge for the Western District of Oklahoma. 15 The Bankruptcy Court issued its opinion and order giving judgment to Defendant on November 22, 1994. 16 27 In their briefs and arguments before the Court, Plaintiff and Defendant focused upon the opinions and holdings contained in the six (6) existing cases which addressed the issues raised by the parties. Plaintiff relied upon Michigan Employment Security Commission v. Wolverine Radio Co., Inc., 930 F.2d 1132 (6th Cir.1991); Draggoo Electric Co., Inc. v. State of Indiana Employment Security Division, 57 B.R. 916 (Bankr.N.D.Ind.1986); and In re Active Steel Erectors, Inc., 53 B.R. 851 (Bankr.D.Alaska 1985), and argued that Defendant's assessment of a post-petition increase in Plaintiff's contribution rate constituted a claim for a penalty for Plaintiff's failure to pay its pre-petition contribution debt by the statutory deadline. Plaintiff argued that such a claim for penalty is not entitled to priority under section 507(a)(7)(G) of the Bankruptcy Code and was effectively discharged upon the Plan's confirmation. 17 Thus, Plaintiff asserted no increased contribution rate could be assessed by Defendant under the Bankruptcy Code. 28 Defendant, however, relied upon In re Primrose Bedspread Corp., 67 B.R. 659 (Bankr.D.N.J.1986); Ravenna Industries, Inc. v. Ohio Bureau of Worker's Compensation, 51 B.R. 496 (Bankr.N.D.Ohio 1985); and In the Matter of Pine Knob Investment, 20 B.R. 714 (Bankr.E.D.Mich.1982), and argued, first, that the increased contribution rate which resulted from the application of section 3-107 of the OESA to Plaintiff was not a claim for penalty, but merely one negative experience factor of the many experience factors which were considered when Defendant calculated Plaintiff's Benefit Wage Ratio. Second, Defendant contended that the Bankruptcy Code permits the utilization of pre-petition experience factors in determining contribution rates for reorganized debtors, such as Plaintiff, following confirmation of Chapter 11 plans. 18 Defendant, therefore, contended that it was legally entitled to consider Plaintiff's failure to pay its first quarter-1991 contributions by the January 31, 1992 deadline, as a negative experience factor when determining Plaintiff's post-confirmation contribution rates. 19 29 After hearing the parties arguments and considering the cited cases, the Bankruptcy Court agreed with Defendant's position. Noting that Plaintiff's contribution rate was calculated based upon statutorily set, facially non-discriminatory experience factors, the Bankruptcy Court held that Defendant was entitled to use the historical fact of Plaintiff's non-payment of pre-petition contributions when determining and assessing the rate of Plaintiff's future contributions under the OESA. 20 30 In so holding, the Bankruptcy Court stated that it had difficulty accepting Plaintiff's characterization of the experience factor under 40 Okla.Stat. Sec. 3-107 as either a debt or penalty which could be prioritized as a claim for taxes under the Bankruptcy Code and discharged upon confirmation of Plaintiff's Plan. 21 Finding no frustration of federal law implicating the Supremacy Clause of the Constitution of the United States, the Bankruptcy Court followed Primrose Bedspread Corp., and other cases cited by Defendant, which hold that pre-petition experience factors under state law may be utilized to calculate the post-petition tax rates of a Chapter 11 reorganized debtor. 22 31 Upon reading the Bankruptcy Court's opinion, it is clear the Court's judgment resulted largely from an articulated difficulty in conceptualizing the 40 Okla.Stat. Sec. 3-107 experience factor which caused Plaintiff's increased contribution rate as a debt or penalty which could be allowed, disallowed, prioritized or discharged in Plaintiff's bankruptcy proceeding. However, while this Court also experiences some difficulty applying the concept of debt to Defendant's assessment of increased contributions under section 3-107, the Court, nevertheless, feels compelled by the Bankruptcy Code's legislative history to find the Code's definitions of claim and debt to be broad enough to encompass the right to payment of additional contributions afforded to Defendant by that statutory provision. 32 Additionally, the Court finds the application of section 3-107 of the OESA to Plaintiff's particular case to render a result so directly in conflict with the goals and purposes of the Bankruptcy Code that it implicates the Supremacy Clause of the United States Constitution. 23 Therefore, the Court revisits the issues addressed by the Bankruptcy Court and, for the reasons discussed, reverses the Bankruptcy Court's holding. 33