DEBTOR CASE NO. 90-70414




This matter is before the Court on the trustee's Motion to Set Aside Agreed Order of April 13, 1993. The Agreed Order accepted claims of certain former employees of the debtor as priority wage claims. At a hearing conducted on June 8, 1993, the Court allowed the claim of one of the employees who had filed an amended proof of claim as a priority wage claim. The trustee filed his Motion to Further Reconsider Agreed Order Filed 4/13/93 on June 10, 1993. By Order of July 16, 1993, the Court set a briefing schedule for the trustee and counsel for the United Mine Workers of America ("UMWA"), and both have since filed memoranda.

The record in this case shows that the debtor filed its Chapter 7 petition in this Court on August 13, 1990. The Agreed Order of April 13, 1993, accepted the wage claims of fifteen former employees of the debtor, all members of the UMWA. In his Motion to Set Aside Agreed Order, the trustee stated that the priority wage claim for one claimant, Billy Salisbury, was erroneously presented because the claimant's total wage claim was less than $2000.00. Three other claimants had not filed individual proofs of claim, but were relying on the consolidated claim of the UMWA, Claim No. 13, and the trustee did not consider their claims to have adequate documentation.

At the hearing on June 8, 1993, the Court took the claim of Billy Salisbury under advisement and ordered that the other three claimants be paid. In his Motion to Further Reconsider Agreed Order Filed 4/13/93, the trustee stated that he did not intend to agree to claims for wages for the period from June 17, 1989 to October 30, 1989, or for the period after April 27, 1990, the date the debtor ceased operations. The UMWA had filed Claim No. 20, "Proof of Multiple Claims for Wages" for various employees for wages earned for work after June 17, 1989. The basis of this claim is a judgment entered by the United States District Court in Pikeville in Civil Action No. 90-42, "UMWA, et al. v. T&BC Coal Mining, Inc., et al."

It is the trustee's position that wage claims for the periods set out above are outside the entitlement period provided for by 11 U.S.C. '507(a)(3)(A), which states that claims for wages are entitled to priority if they are earned within 90 days before the filing of the petition, or the date of cessation of the debtor's business, whichever occurs first. The trustee's contention is based on the fact that the wages were for a period more than 90 days prior to the filing of the petition or the cessation of the debtor's business. The trustee does not cite any cases in support of his position.

The UMWA, on behalf of the claimants, argues that the language "earned by an individual within 90 days before ..." does not necessarily mean that the work done by the individual to earn the unpaid wages had to be performed in the 90 day period. If the wages were due and payable within the 90 day period, they were "earned" during that period.

The UMWA cites in support of its contention In re Seventh Avenue South, Inc., 10 B.R. 289 (Bkrtcy.W.D.Va. 1981) and In re Crouthamel Potato Chip Co., 52 B.R. 960 (D.C.E.D.Pa. 1985). The Crouthamel court stated:

To determine whether a particular claim for wages has been earned within the statutory period prior to the filing of the bankruptcy petition does not involve an inquiry into when the debtor would have been required to pay the claim. Wages are earned within the meaning of '507(a)(3) if they are owing at the time of filing of the petition, ... In other words, the question for the court is not when, as a matter of accounting, the employee could obtain the funds but when, as a matter of contract, the employee's right to receive those funds was fixed and could not be taken from him by the occurrence of some contingent event. (Cites omitted.)

At page 965. The UMWA points out that liability for the wages in question was fixed at least as of May 31, 1990, the date of entry of the District Court judgment. Since that date is within 90 days of the filing of the bankruptcy petition, it contends, the wages were "earned" at that time.

The UMWA's interpretation of the above-quoted language in Crouthamel to mean that the work that produced the wages does not have to be performed within the 90 day period is not borne out, however, when reference is made to cases cited by the court at page 965, supra. In In re Ad Service Engraving Co., 338 F.2d 41, 43 (6th Cir. 1964) and United States v. Munro-Van Helms Co., 243 F.2d 10, 13 (5th Cir. 1957), the respective courts opined that wages are "earned" when the work is performed. These are Bankruptcy Act cases, but the pertinent Act provision, '64(a)(2), concerning priority wages is similar to 11 U.S.C. '507(a)(3). The court's analysis in Munro-Van Helms Co. is especially instructive on this issue. There the claimants had sought priority for twelve months' worth of vacation pay. The court ruled that where a collective bargaining agreement provided that the employees' right to a vacation and so to vacation pay "accrued" as of July 1, the vacation pay of those entitled to it under the contract constituted "wages" earned over a period of one year. However, they were entitled to priority under the Bankruptcy Act giving priority to "wages" earned within three months of the commencement of the proceeding only to the extent of one-fourth (or three months' worth) of the annual vacation pay. Id., pp. 13-14.

In coming to this conclusion the court quoted from a case which had enunciated what it considered the "better rule":

'Under the terms of the statute the compensation claimed must have been earned within the three months' period and also must be due. If any employee here had not, prior to bankruptcy, completed a year's continuous service no compensation for vacation time would have been due him, regard being had to the wage agreement. All having completed the required year's service prior to bankruptcy, vacation compensation may fairly be regarded as due even though the vacation was not to be taken until some later time; but the vacation had been earned by the performance of the entire year's service, and only one-fourth of it earned during the three months preceding bankruptcy. We see no more justification for giving priority to vacation pay conditionally accruing prior to such three months' period than for giving priority to straight wages earned prior thereto.' Division of Labor Law Enforcement, State of Cal. v. Sampsell, 9 Cir., 1949, 172 F.2d 400, 401.

It appearing that case law supports the trustee's position in this matter, it is the opinion of this Court that the trustee's Motion to Set Aside Agreed Order of April 13, 1993, should be sustained. An order in conformity with this opinion will be entered separately.


By the Court -






Copies to:


James A. Nolan, Esq., Trustee

Sherry Brashear, Esq.