Does the priority limitation found in the Bankruptcy Code apply to every fund that solicits unpaid contributions? Or do the claims of all funds sponsored by the bankrupt employer have to be aggregated?
The 7e The Circuit Court of Appeal sided with more than a dozen masonry workers in answering this question in a ruling on Monday, finding that section 507 (a) (5) of the code does not does not require the collective evaluation of separate benefit plans.
The appeals court upheld the decision of the U.S. District Court for the Northern District of Indiana in In Re: Algozine Masonry Restoration, Inc., Algozine Masonry Restoration, Inc., v. Local 52 Chicago Area Joint Welfare Committee for the Pointing, Cleaning and Caulking Industry, et al., 20-3384, finding that the text of section 507 (a) (5) unambiguously supports the conclusions of the lower court.
Algozine Masonry Restoration Inc., a masonry grouting and restoration company, employed members of the Chicago Area Grouting, Cleaning and Caulking Industry Union, Local 52. In a collective agreement with the union , Algozine was required to make contributions to three employee benefit funds. on behalf of employees who have performed work covered by the CBA, including welfare, retirement and annuity funds. All of the funds were multi-employer benefit funds that were administered under the Employees Retirement Income Security Act 1974.
Problems arose for Algozine when it fell behind in its contributions to the funds and, in November 2016, filed for Chapter 11 bankruptcy. The funds filed separate evidence of claims under Section 507 (a) (5) for unpaid Algozine contributions on behalf of 15 employees each for provident and retirement funds, requesting $ 65,658.83 and $ 56,057.90 respectively. They also filed employee claims for the annuity fund, seeking $ 34,621.36.
The funds then amended these requests to $ 21,334.30, $ 18,453.40 and $ 11,607.16, for a total of $ 51,394.86. But Algozine argued that the funds did not account for payments made by Algozine or third parties in the 180-day period leading up to the bankruptcy application.
Either way, Algozine unsuccessfully argued that the total amount should be reduced to $ 5,556.34, claiming that the funds erred in applying the priority cap that appears in section 507 (a) ( 5) to the claims of each fund rather than to the aggregate claims of the funds.
âDespite Algozine’s best efforts to cover their tracks, Article 507 (a) (5) is straightforward. It allows âeach of theseâ employee benefit plans to file priority claims for services rendered within the applicable time frame. The priority limit is determined by multiplying the number of employees covered by âeach of these plansâ by $ 12,850. From that number, the plan must subtract the total amount paid under section 507 (a) (4) in addition to payments made to any other benefit plan, âCircuit Judge Diane Wood wrote for the 7e Circuit.
Noting that none of Algozine’s employees made a claim under section 507 (a) (4), on 7e Circuit therefore ignored this variable. The net result, he found, was that each fund’s individual priority claims were well within the limits of section 507 (a) (5) (B).
“As the bankruptcy court observed, Section 507 (a) (5)” clearly provides that in a single bankruptcy case more than one “benefit plan” may file a claim. , ie “contribution claims” and that the priority limit set out therein applies to “each of these plans”; who could only refer to – each claim filed in the case by or on behalf of an employee benefit plan. ‘ We have nothing to add to this reasoning, âconcluded Wood.
On a final point, the Appeal Board found no indication that section 507 (a) (5) relates to the actual hours worked by each employee. It made this decision in response to Algozine’s waiver argument that some employees who received benefits from the funds did not render services within the applicable timeframe and, therefore, did not work enough time. ‘hours to be included in the priority claims of the funds.
” On the contrary : ‘[a] a simple reading of Â§ 507 (a) (5) shows that it provides an overall limit of recovery under this provision[,]’related to the total number of employees,’ the panel wrote.