UNITED
STATES BANKRUPTCY COURT
ASHLAND
DIVISION
IN RE:
HNRC DISSOLUTION CO., f/k/a
Horizon Natural Resources
Company, et
al. CASE NO. 02-14261
DEBTOR
MEMORANDUM OPINION AND ORDER
This
matter is before the court on the Motion for Reconsideration Pursuant to Rule
3008, or in the Alternative, to Alter or Amend Judgment, or for Relief From
Judgment Pursuant to Rules 7052, 9023 and 9024 (“the Motion for
Reconsideration”) filed by the UMWA 1974 Pension Plan and its Trustees (“the
Plan”). Lexington Coal Company, LLC
(“Lexington Coal”) has filed an Objection to the Motion for Reconsideration. The judgment in question is this court’s
Memorandum Opinion entered on November 5, 2005, denying the 1974 Plan’s
administrative expense claim for withdrawal liability. The court determined that the Plan had not
demonstrated that withdrawal liability, the withdrawn employer’s allocable
share of a multiemployer pension plan’s unfunded vested benefits, constituted a
direct and substantial benefit to the Debtors’ estates. Based on that determination, the court ruled
that the Plan’s amended claim for withdrawal liability was “not allowable as an
administrative claim and should be reclassified as an unsecured claim subject
to any further valid objections.”
(Memo. Op., p. 10).
The
Plan bases its Motion for Reconsideration on its contention that the court’s
conclusion was based on mistakes of both fact and law, focusing on the court’s
observation that the amount of withdrawal liability decreased during the
Chapter 11 proceedings. Specifically,
the Plan argues that the decrease in the stated amount of the Debtors’
withdrawal liability, from $146,307,051.13 to $138,354,090.00, did not
represent a “paydown” of the Debtors’ pension obligations, but only a change in
the actuarial method employed by the Plan.
To
explain the change in actuarial method, the Plan attaches a Declaration of Dale
R. Stover (“the Stover Declaration”) and a November 12, 2004 letter from Mercer
Human Resources Consulting (“Mercer”) to the Motion for Reconsideration. Mercer apparently recommended the change in
assumptions in calculating withdrawal liability based on its opinion that the
original assumptions were indefensible, unduly high, and not standard in the
industry. As set out above, the change
in assumptions reduced the net withdrawal liability by approximately $7 million
during the administration of the case.
The Plan asserts that an increase or decrease in the amount of
withdrawal liability is not indicative of value or lack thereof to the estate.
As
this court stated in its opinion, withdrawal liability “may have accumulated
over many years and is clearly dependent, among other things, upon the success
of the investments as administered by the trustees of the fund and
contributions by other employers.”
(Memo. Op., p. 6). Another
factor is the underlying assumptions used to calculate the liability. The Stover Declaration and the Mercer letter
regarding the changes in assumptions demonstrate that withdrawal liability
decreased during the Chapter 11 proceeding; they do not support the conclusion
that withdrawal liability arises from some direct and substantial benefit to
the Debtors’ estates. As the court
pointed out, a claimant must demonstrate this direct and substantial benefit in
order to satisfy the requirements set out in In re Sunarhauserman, Inc.,
126 F.3d 811, 816 (6th Cir. 1997).
The
Plan’s failure to address the issue of direct and substantial benefit to the
estate bespeaks a certain misunderstanding of the concept of an administrative
expense claim. In fact, the Plan’s
arguments have consistently appeared to be based on the assumption that
transactions with the Debtors only have to be shown to be post-petition in
order to qualify as administrative expenses.
To the contrary, the Plan must establish that the unfunded vested
benefits it claims as an administrative expense arose because of a direct and
substantial benefit to the estate. As
previously stated, the fact that vested benefits were unfunded during the
period under consideration is attributable in some significant part to other
factors including poor investment performance.
The
court has considered the Plan’s arguments, and finds nothing in them that
convinces the court that it made a mistake, either of fact or law. The Plan has not established that its claim
is entitled to administrative priority, and its Motion for Reconsideration is
not well taken. The court therefore
hereby ORDERS that the Motion for Reconsideration Pursuant to Rule 3008,
or in the Alternative, to Alter or Amend Judgment, or for Relief From Judgment
Pursuant to Rules 7052, 9023 and 9024 filed by the UMWA 1974 Pension Plan and
its Trustees is overruled.
Copies to:
Marilyn L. Baker, Esq.
Barbara E. Locklin, Esq.
Rex Dunn, Esq.
Gregory R. Schaaf, Esq.