The Bottom Line
The U.S. Bankruptcy Court for the Southern District of New York entered a decision confirming the applicability of the Court’s bar date order as it relates to a pension fund’s claim for withdrawal liability filed after the bar date, despite the fact that the withdrawal occurred after the deadline for filing proofs of claim.
What Happened?
Manhattan Jeep Chrysler Dodge, Inc. (“Manhattan Jeep”) and Manhattan Automotive, LLC (“Manhattan Automotive”) filed for chapter 11 relief on March 9, 2018. Manhattan Jeep, both prior to the bankruptcy filing and for a time thereafter, was a participant in a multiemployer pension plan called Local 868 International Brotherhood of Teamsters Pension Fund (the “Fund”). Pursuant to federal statutory law, any termination of Manhattan Jeep’s obligations to the Fund, including a permanent cessation of its operations, would trigger a withdrawal liability to the Fund.
On Sept. 9, 2018, the Court approved a sale of substantially all of Manhattan Jeep’s assets. In September, after the sale and after failing to file a proof of claim by the bar date, the Fund notified Manhattan Jeep that it believed it held a claim for withdrawal liability. In November, the Fund provided Manhattan Jeep with a calculation of the claim. At the end of January—approximately eight months after the bar date—the Fund filed motions seeking permission to file proofs of claim based on this liability. In its motions, the Fund argued that its withdrawal liability claims were not “claims” at the time of the bankruptcy filing or at the time of the bar date and, therefore, were not subject to the bar date. Alternatively, the Funds sought permission to file belated claims on the grounds of “excusable neglect.”
Judge Wiles held that the withdrawal liability claim was subject to the bar date order. Quoting the Bankruptcy Code’s definition, the Court found that the definition of “claim” clearly encompasses claims that “have not yet fully matured, that are contingent on the happening of future events, and that might not yet be fully liquidated and enforceable.” Judge Wiles also emphasized that, if he were to adopt the Funds’ argument, a host of contingent and unmatured claims (e.g., claims arising under guarantees and indemnities) would “escape” the bar date, which runs contrary to the purpose of the bar date order—to identify all potential claimants so a company can successfully reorganize and structure potential distributions.
Judge Wiles did not outright deny the motion, but rather directed the parties to confer regarding preparations for a trial to address the Fund’s alternative argument and the “real issue”—whether “excusable neglect” has been established.
Why This Case Is Interesting
Notably, in his bench decision, Judge Wiles disagreed with the Sixth Circuit’s reasoning in CPT Holdings, Inc. v. Indus. & Allied Emps. Union Pension Plan Local 73, 162 F.3d 405 (6th Cir. 1998)—the case which the Funds relied. In that case, the prior pension fund arrangements and contributions continued for 19 months after the plan became effective. The Sixth Circuit held that the claim for withdrawal liability existed only once the actual withdrawal occurred and found that the pension fund had no claim that was discharged by the confirmation of the plan.
Judge Wiles questioned the Sixth Circuit’s reasoning, noting that he “cannot help but wonder whether a better way to have explained the decision” would be to say that the fund’s contingent claim for statutory withdrawal liability was renewed when CPT continued, post-bankruptcy, to participate in the pension plan and benefits of that plan. Notwithstanding this criticism, Judge Wiles distinguished CPT by pointing out that circumstances of that case were “unusual.” Notably, there was no withdrawal liability at all during the bankruptcy case, but rather the claim arose months after the plan of reorganization became effective. Judge Wiles then explicitly stated that, if CPT calls for him to exempt the Fund’s claim from the bar date, he respectfully disagrees with the rational and declines to follow it.
The decision also highlights that, in practice, claimants should file proofs of claims for withdrawal liability, even if the event triggering withdrawal has not yet occurred. As highlighted by the Court, potential claimants should file proofs of claim for unmatured and contingent claims, as well as claims that might not yet be fully liquidated or enforceable by the bar date.
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