Opinion ID: 711058
Heading Depth: 2
Heading Rank: 1

Heading: Application of the Bankruptcy Code to Plaintiff's Case.

Text: 39 Under the Bankruptcy Code, a claim is any right to payment, whether such claim is matured, unmatured, liquidated or unliquidated. 11 U.S.C. Sec. 101(5)(A). Congress drafted the definition of claim broadly to assure courts would construe the term claim to include virtually all legal or equitable rights to payment. Bayless v. Crabtree Through Adams, 108 B.R. 299, 305 (Bankr.W.D.Okla.1989), aff'd., 930 F.2d 32 (10th Cir.1991); Franklin Sav. Ass'n. v. Office of Thrift Supervision, 150 B.R. 61, 63 (Bankr.D.Kan.1993), aff'd., 31 F.3d 1020 (10th Cir.1994). Congress contemplated the broad definition would assure all legal obligations of the debtor, no matter how remote or contingent, [would] be able to be dealt with in the course and scope of the bankruptcy proceeding. Bankruptcy Reform Act of 1978, Pub.L. No. 95-598, 92 Stat. 2549, Sen.Rep. No. 95-989, 95th Cong., 2d Sess. (1978) reprinted in 1978 U.S.C.C.A.N. 5787, 5808. 40 In light of this legislative history, the Court holds that a state agency's statutory right to receive payment of additional unemployment contributions, as such right is reflected by an increased unemployment contribution rate, is a claim which arises when a debtor's unemployment contribution payment is statutorily determined to be delinquent under state law. See Wolverine Radio Co., 930 F.2d at 1150; Draggoo Electric Co., Inc., 57 B.R. at 920; In re Active Steel Erectors, Inc., 53 B.R. at 853-54. Under sections 502(i) and 507(a)(7)(D) of the Bankruptcy Code, this claim qualifies as a tax entitled to priority which, if it arises after commencement of the bankruptcy case, is to be treated by the bankruptcy court as if such claim had arisen before the date of the filing of the petition. 11 U.S.C. Sec. 502(i). See In re Active Steel Erectors, Inc., 53 B.R. at 852. 41 Because it is defined by law to be a pre-petition priority claim under section 502(i) of the Bankruptcy Code, the post-petition assessment of an increased contribution rate is deemed to have been included in, and settled by the debtor's Chapter 11 plan of reorganization. 11 U.S.C. Secs. 1129(a)(9)(C), 1141(d)(1)(A). Upon confirmation, the plan binds both the debtor and the assessing state agency to the settlement of this claim. 11 U.S.C. Secs. 502(i), 1129(a)(9)(C), 1141(a). Under section 1141(d)(1)(A) of the Bankruptcy Code, any part of the claim which is not satisfied under the provisions of the plan is discharged as a debt when the Chapter 11 debtor's plan of reorganization is confirmed. See 11 U.S.C. Sec. 101(12) (a debt is a liability on a claim); Sen.Rep. No. 95-989, 1978 U.S.C.C.A.N. at 5809 (the terms debt and claim are co-extensive); 11 U.S.C. Sec. 1141(d)(1)(A) (the confirmation of a plan discharges the debtor from all debts of a kind specified in section 502(i) of the Bankruptcy Code). See also, In re Active Steel Erectors, Inc., 53 B.R. at 853. 42 Applying the above-stated analysis to the instant case, the right of Defendant to receive payment of additional unemployment contributions as provided by the application of section 3-107 of the OESA to Plaintiff's case is a Seventh priority claim against Plaintiff's Chapter 11 bankruptcy estate and also a debt of Plaintiff under sections 101(5)(A), 101(12), and 507(a)(7)(D) of the Bankruptcy Code. Because Defendant's claim is a priority claim which is deemed to have arisen pre-petition under 11 U.S.C. Sec. 502(i), it constitutes a debt which was discharged upon confirmation of Plaintiff's Plan of reorganization. 11 U.S.C. Sec. 1141(d)(1)(A). 43 Consequently, this Court holds that Defendant's claim for an increased contribution rate based upon the application of section 3-107 to Plaintiff's unpaid, pre-petition unemployment contributions is a debt which was discharged upon confirmation of Plaintiff's Chapter 11 Plan of reorganization. Thus, Defendant cannot apply the fact of Plaintiff's non-payment of its first quarter-1991 contributions to raise Plaintiff's future contribution rates. 44 If, as Plaintiff contends and Defendant disputes, the increase in Plaintiff's contribution rate constitutes a penalty levied upon Plaintiff for missing the January 31, 1992 deadline under section 3-107 of the OESA, the holding of this Court remains essentially the same. To the extent such a penalty reflects reimbursement of Defendant for actual pecuniary loss, the increased contribution rate is treated as a pre-petition, priority claim under sections 502(i) and 507(a)(7)(G), and therefore is a debt which was discharged upon the Plan's confirmation under section 1141(d)(1)(A) of the Bankruptcy Code. 45 If the increased contribution rate is merely punitive in nature, then Defendant's claim constitutes a non-priority claim under 11 U.S.C. Sec. 507(a)(7)(G) which arose prior to the date of confirmation of Plaintiff's Plan. See In re Chief Freight Lines Co., 146 B.R. 291, 293 (Bankr.N.D.Okla.1992) (tax penalties which are merely punitive in nature are not afforded priority under 11 U.S.C. Sec. 507). Such a claim is also a debt of Plaintiff which was discharged upon the Plan's confirmation. 11 U.S.C. Sec. 1141(d)(1)(A) (confirmation of a plan discharges the debtor from any debt arising prior to the date of confirmation). See Wolverine Radio Co., 930 F.2d at 1149-50; Draggoo Electric Co., Inc., 57 B.R. at 919-20. 46 Therefore, whether the increased contribution rate resulting from the application of section 3-107 to Plaintiff's case is considered a penalty or not, the increased contribution rate is a pre-confirmation claim of Defendant, and a debt of Plaintiff which was discharged when Plaintiff's Plan was confirmed by the Bankruptcy Court. Accordingly, this Court holds that under the provisions of the Bankruptcy Code, Defendant cannot use Plaintiff's failure to pay its first quarter-1991 contributions during the pendency of Plaintiff's bankruptcy case to assess higher contribution rates against Plaintiff post-confirmation. As will be discussed in the section of this opinion which follows, an identical result is compelled by the principles established by the Supremacy Clause of the United States Constitution. U.S. Const. art. VI, cl. 2. 47