In re Spirit Holding Co.

157 B.R. 883, 1993 Bankr. LEXIS 1131, 1993 WL 356876
CourtDistrict Court, E.D. Missouri
DecidedJune 23, 1993
DocketBankruptcy No. 93 42135-293; Motion No. 125
StatusPublished
Cited by1 cases

This text of 157 B.R. 883 (In re Spirit Holding Co.) is published on Counsel Stack Legal Research, covering District Court, E.D. Missouri primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re Spirit Holding Co., 157 B.R. 883, 1993 Bankr. LEXIS 1131, 1993 WL 356876 (E.D. Mo. 1993).

Opinion

MEMORANDUM OPINION

DAVID P. McDONALD, Bankruptcy Judge.

JURISDICTION

This Court has jurisdiction over the parties and subject matter of this proceeding pursuant to 28 U.S.C. §§ 1334,151, and 157 and Local Rule 29 of the United States District Court for the Eastern District of [884]*884Missouri. This is a “core proceeding” pursuant to 28 U.S.C. § 157(b)(2)(A), which the Court may hear and determine.

PROCEDURAL BACKGROUND

(1) On May 6, 1993, Central Hardware Company (Central) and Witte Hardware Corporation (Witte), as debtors and debtors in possession (collectively, Debtors), moved the Court to invoke its equitable powers and issue an order authorizing them to pay certain prepetition sales commissions to their salespeople.

(2) The Bank Group1 initially filed an objection to the payment of any of the commissions contemplated by Debtors’ motion. However, at a hearing held on May 21, 1993, the Bank Group orally consented to the payment of those commissions which would qualify for priority status under section 507(a)(3) of the Bankruptcy Code (i.e. those earned within ninety days of the Debtors’ filing for bankruptcy protection in an amount not to exceed $2,000.00 per salesperson). The Bank Group conditioned its consent upon the Debtors’ proving, one, that any commissions paid were actually earned within the ninety-day period and, two, that no salesperson received more than $2,000.00. The Bank Group expressed concern that some of the salespeople might have previously received payments pursuant to an order of the United States Bankruptcy Court for the District of Delaware2 under the theory that the sums previously-paid qualified for priority under section 507(a)(3), 507(a)(4) or 507(a)(7) of the Bankruptcy Code and the amount of these payments would necessarily reduce the amount the Court could now approve because section 507(a)(3) limits each individual’s priority to a total of $2,000.00.

(3) Local 655 of the United Food and Commercial Workers Union (Union) filed a Supplemental Statement in Support of Supplemental Motion of Debtor Central Hardware Company for Authorization to Pay Certain Pre-Petition Sales Commissions to Employees. The Union took the position that under section 1113 of the Bankruptcy Code and the collective bargaining agreement between it and the Debtors, its members were entitled to full payment of all commissions owed to them without regard to the priority criteria set forth by section 507(a)(3) of the Bankruptcy Code.

(4) Local 881 of the United Food and Commercial Workers Union also filed a Statement in Support of Debtor’s Motion for Authorization to Pay Certain Pre-petition Sales Commissions to Employees.

FACTUAL BACKGROUND

(1) Before they filed their petition in bankruptcy, the Debtors entered into a collective bargaining agreement with the Union (the Agreement).3

(2) The Debtors have not proceeded under section 1113 of the Bankruptcy Code to reject the Agreement.

(3) Article 26.00 of the Agreement provides for the monthly payment of sales commissions/bonuses to members of the Union based upon the type and amount of sales they make over a given period. Article 26 also allows Union salespeople employed by the Debtors to draw $170.00 per [885]*885week (paid bi-weekly) against the commissions they earn.

(4) Pursuant to corporate policy, the Debtors also paid non-union salespeople commissions/bonuses.

(5) Debtors employ approximately 70 salespeople (Union members and non-Union members) and owe commissions to many of these people.

(6) On March 30, 1993, Judge Helen S. Balick of the Bankruptcy Court for the District of Delaware, entered an order approving the payment of pre-petition wages and related expenses to the Debtors' employees so long as the claims paid qualified for priority under §§ 507(a)(3), 507(a)(4) or 507(a)(7) of the Bankruptcy Code.

DISCUSSION

After considering the parties’ briefs and the authorities cited therein, the Court has concluded that it can only authorize the payment of those commissions to the Debtors’ salespeople earned within ninety days of the Debtors’ filing their bankruptcy petition in an amount not to exceed $2,000.00 per salesperson when totalled with those payments previously made to each salesperson under the March 30, 1993 order of the United States Bankruptcy Court for the District of Delaware.

The Union argued before this Court that section 1113(f) of the Bankruptcy Code which provides that a trustee cannot “unilaterally terminate or alter any provisions of a collective bargaining agreement prior to compliance with” the other subsections of section 1113 (which prescribe the methodology by which a debtor may reject its collective bargaining agreements) required the Debtors to pay the Union’s members their commissions in full, without regard to the limits set forth in section 507(a)(3) of the Code. The Court, however is persuaded by the logic of those courts that have rejected the argument the Union has made.

Chief Judge Paskay, writing for the Bankruptcy Court for the Middle District of Florida held that “[sjection 1113 in no way eliminated or modified the provisions of § 507 requiring the prioritization of wages and other employment benefits earned prior to the filing of the bankruptcy petition.” Shipwrights, Joiners and Caulkers Local 2071 of the United Brotherhood of Carpenters, AFL-CIO v. Uniflite, Inc. (In re Murray Industries), 110 B.R. 585, 588 (Bankr.M.D.Fla.1990). In Murray Industries the union claimed that its members were entitled to receive payment of all their vacation benefits under a collective bargaining agreement following the post-petition lay-off of virtually all of the debtor’s employees. Id. at 586. Local 2071 argued that the debtor’s refusal to pay its laid-off employees the amounts due them under their collective bargaining agreement constituted a unilateral modification of that agreement which section 1113(f) of the Code prohibits. Id.

In rejecting Local 2071’s argument, Chief Judge Paskay noted that if section 1113(f) required the debtor to immediately pay the union members their vacation benefits, then it directly conflicted with sections 507 and 1129 of the Code which proscribe how claims will be treated in bankruptcy. Id. at 587. Because the union’s interpretation of section 1113 would create a direct conflict, Chief Judge Paskay examined the history of section 1113 and compared it to section 1114 which exempts the payment of retirement benefits from the other provisions of the Bankruptcy Code that might prohibit their payment. Id. The Chief Judge noted that both section 1113 and 1114 established procedures by which a debtor can alter certain types of contractual obligations.

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Cite This Page — Counsel Stack

Bluebook (online)
157 B.R. 883, 1993 Bankr. LEXIS 1131, 1993 WL 356876, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-spirit-holding-co-moed-1993.