Court Opinion

ID: 2814128
Source: CourtListenerOpinion
Date Created: 2015-07-02 15:00:44.718952+00
Date Added: 2024-06-11T11:30:30.201575
License: Public Domain

14-3349-bk
     FELRA v. The Great Atl. & Pac. Tea Co.

                                  UNITED STATES COURT OF APPEALS
                                      FOR THE SECOND CIRCUIT

                                              SUMMARY ORDER

     RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A
     SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED
     BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1.
     WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY
     MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE
     NOTATION “SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY
     OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

 1           At a stated term of the United States Court of Appeals for the Second Circuit, held at the
 2   Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the
 3   2nd day of July, two thousand fifteen.
 4
 5   PRESENT:    GUIDO CALABRESI,
 6               DEBRA ANN LIVINGSTON,
 7                            Circuit Judges,
 8               WILLIAM K. SESSIONS III,1
 9                            District Judge.
10   ____________________________________________________
11
12   FOOD EMPLOYERS LABOR RELATIONS ASSOCIATION AND UNITED
13   FOOD AND COMMERCIAL WORKERS PENSION FUND,
14
15                   Appellant,
16
17                           v.                                          No. 14-3349-bk
18
19   THE GREAT ATLANTIC & PACIFIC TEA COMPANY,
20
21                   Appellee,
22
23   ____________________________________________________
24
25
26
27
28

     1
      The Honorable William K. Sessions III, of the Unites States District Court for the District of
     Vermont, sitting by designation.

                                                     1
 1   FOR APPELLANT:                        JEFFREY S. SWYERS, Barry S. Slevin, Christopher M. Leins,
 2                                         Slevin & Hart, P.C., Washington, DC.
 3
 4   FOR APPELLEE:                         MICHAEL B. SLADE, John S. Moran, Paul M. Basta,
 5                                         Kirkland & Ellis LLP, Chicago, IL.
 6
 7          Appeal from the United States District Court for the Southern District of New York

 8   (Román, J.). UPON DUE CONSIDERATION WHEREOF, IT IS HEREBY ORDERED,

 9   ADJUDGED, AND DECREED that the judgment of the District Court is AFFIRMED.

10                                            *      *          *

11          Appellant Food Employers Labor Relations Association and United Food and

12   Commercial Workers Pension Fund (“FELRA”) sought administrative expense treatment under

13   11 U.S.C. § 503(b)(1)(A) for a portion of its claim against the bankruptcy estate of Appellee

14   Great Atlantic & Pacific Tea Company (“A&P”) arising out of A&P’s withdrawal from

15   participation in the FELRA pension plan. An employer that withdraws from a multiemployer

16   employee benefit plan incurs “withdrawal liability” to the plan under 29 U.S.C. § 1381(a), meant

17   to cover that employer’s share of the plan members’ vested but unfunded benefits. See Trustees

18   of the Amalgamated Ins. Fund v. McFarlin’s, Inc., 789 F.2d 98, 99 (2d Cir. 1986). The Bankruptcy

19   Court (Drain, J.) denied FELRA’s motion for allowance of an administrative expense claim, and

20   the district court affirmed. “On an appeal from the district court’s affirmance of a bankruptcy

21   court’s order, we review the decision of the bankruptcy court independently, assessing its

22   conclusions of law de novo and its factual findings for clear error.” In re Dana Corp., 574 F.3d

23   129, 144-45 (2d Cir. 2009). As this appeal involves only questions of law, our review is de novo.

24   See In re Bethlehem Steel Corp., 479 F.3d 167, 172 (2d Cir. 2007) (“The bankruptcy court’s

25   determination in this case that the payment at issue does not constitute an administrative expense

26   is a conclusion of law.”). We assume the parties’ familiarity with the underlying facts, the

27   procedural history, and the issues presented for review.
                                                     2
1           Section 503(b) of the Bankruptcy Code provides that, “[a]fter notice and a hearing, there

2    shall be allowed administrative expenses, . . . including . . . the actual, necessary costs and

3    expenses of preserving the estate including . . . wages, salaries, and commissions for services

4    rendered after the commencement of the case.” Under this Court’s case law, “an expense is

5    administrative only if it arises out of a transaction between the creditor and the . . . debtor in

6    possession, and only to the extent that the consideration supporting the claimant’s right to

7    payment was both supplied to and beneficial to the debtor-in-possession in the operation of the

8    business.” McFarlin’s, 789 F.2d at 101 (citations and internal quotation marks omitted). A

9    creditor seeking administrative expense treatment has the burden of proving its entitlement to

10   that status. In re Bethlehem Steel, 479 F.3d at 172.

11          FELRA recognizes that, under our decision in McFarlin’s, it is not entitled to

12   administrative expense priority for its entire withdrawal liability claim. See 789 F.2d at 103-04.

13   Instead, FELRA seeks administrative expense treatment for an amount that it claims is the portion

14   properly attributable to A&P’s post-petition operations, and thus to the post-petition labor of

15   FELRA’s members. Assuming without deciding that such a claim exists, we nevertheless affirm

16   the bankruptcy court’s denial of FELRA’s motion for allowance of an administrative expense

17   claim on the ground that FELRA has failed to meet its burden of proving that its claim is entitled to

18   administrative expense treatment.

19          FELRA’s proposed calculation method involves performing the operations necessary to

20   arrive at A&P’s total withdrawal liability under ERISA’s presumptive method, see 29 U.S.C.

21   § 1391(b), but stopping once FELRA’s share of the unfunded vested benefits allocated to the year

22   2011 has been calculated, and basing its claim on that number. Due to the peculiarities of ERISA’s

23   calculation methodology, that number bears little if any relation to the actual amount of unfunded

24   benefits that vested in 2011, because ERISA’s presumptive method uses the most recent plan year
                                                      3
1    as a dumping ground for any unfunded vested benefits that exist as a financial reality, but which

2    have been discounted out of past years’ amounts. In other words, the amount of unfunded vested

3    benefits allocated to the year 2011 by the ERISA presumptive method is a fiction, bearing no

 4   relationship to the amount by which the Plan’s unfunded benefits or A&P’s withdrawal liability

 5   actually increased or decreased during the 2011 plan year.

 6          A debt “can only be an administrative expense if the debtor received the consideration for

 7   the obligation after the commencement of bankruptcy proceedings.” In re Bethlehem Steel, 479

 8   F.3d at 172-73. Because FELRA’s proposed post-petition claim amount bears no causal

 9   relationship to the post-petition consideration provided by the covered employees—either in terms

10   of hours worked or in terms of the employees’ willingness to work at all—FELRA cannot meet its

11   burden of showing that A&P received the consideration for FELRA’s claim “after the

12   commencement of bankruptcy proceedings.” Id. at 173. Moreover, as the bankruptcy court pointed

13   out, “the calculation is loaded in favor of a higher number for the year of withdrawal,” even though

14   FELRA cannot show that the consideration provided by the covered workers was concomitantly

15   “loaded in favor of” the year 2011. Sp. App’x at 14. FELRA’s protests that this is the only method

16   that accords with ERISA are disingenuous—FELRA’s own expert admitted that ERISA had

17   nothing to say about how a withdrawal liability claim should be partitioned for bankruptcy

18   purposes—and incorrect, as the ERISA presumptive method is meant to arrive at a total

19   withdrawal liability number, and the various subtotals that go into that final total serve no

20   independent purpose in the statute. See generally 29 U.S.C. § 1391. Thus, the bankruptcy court did

21   not err in holding that FELRA’s proposed administrative expense claim, as calculated, failed to

22   qualify for administrative expense status.

                                                      4
1          We have considered all of the remaining arguments raised by Appellant and find them to

2   be without merit. For the reasons stated above, we AFFIRM the District Court’s August 11,

3   2014 judgment affirming the July 2, 2013 order of the Bankruptcy Court.

4

5                                                     FOR THE COURT:
6                                                     Catherine O’Hagan Wolfe, Clerk

                                                  5