A Pension Withdrawal Claim Arises Before Withdrawal Occurs, Manhattan Judge Says

A pension plan with a potential claim for withdrawal liability must file a proof of claim before the bar date, even if events giving rise to withdrawal liability have not yet occurred, according to Bankruptcy Judge Michael E. Wiles of Manhattan.

Judge Wiles politely explained why a contrary opinion from the Sixth Circuit was based on flawed analysis.

A car dealership filed a chapter 11 petition, saying up front that it intended to sell the assets and liquidate. The permanent cessation of operations would give rise to withdrawal liability under a multiemployer pension plan.

One month after filing, the bankruptcy court authorized a bar date about 10 weeks after the filing date. The pension fund did not file a claim by the bar date.

Seven months after filing, the bankruptcy court approved a sale of all of the debtor’s assets. 

About four months after sale approval, and about eight months after the bar date, the pension fund filed a motion for permission to file a claim based on withdrawal liability. The pension fund argued that the bar date did not apply because it had no claim until the business was sold, months after the bar date.

The pension fund relied on CPT Holdings Inc. v. Industrial & Allied Employees Union Pension Plan Local 73, 162 F.3d 405 (6th Cir. 1998), where the Sixth Circuit arguably held there was no claim for withdrawal liability until withdrawal actually occurred. In his March 4 bench opinion, Judge Wiles distinguished CPT on the facts and said, in substance, that the Sixth Circuit came to the correct result for the wrong reason. He also cited two bankruptcy courts that disagreed with CPT.

Judge Wiles noted there was no withdrawal during the CPT bankruptcy. Withdrawal occurred 19 months after confirmation when the secured lender foreclosed on the reorganized debtor and liquidated the business. On the facts of the case, the Sixth Circuit held that the pension fund had no claim that was discharged during bankruptcy, Judge Wiles said.

Judge Wiles said it would have been “better” had the Sixth Circuit ruled that the debtor revived its withdrawal liability by participating in the pension plan and continuing to pay premiums for months after bankruptcy.

Turning to the case at hand, Judge Wiles focused on the Section 101(5)(A) definition of “claim,” which includes contingent, unmatured, and unliquidated claims. If the pension fund’s argument held water, he said, “a host of contingent and unmatured claims . . . would all escape the Court’s bar date.”

Judge Wiles went on to say that adopting the pension fund’s theory would require classification of withdrawal claims as administrative claims.

Although Judge Wiles concluded that the bar date did apply to the pension fund, he stopped short of denying the motion to file a claim. He directed the parties to prepare for a trial to determine whether “excusable neglect” would permit the filing of a late claim.