In an 11 page opinion (the “Opinion”) released March 9, 2015, in the Trump Entertainment Resorts, Inc. bankruptcy (Case No. 14-12103), Judge Gross interpreted Bankruptcy Code 503(b)(1)(A) in approving the reclassification of a claim from a priority claim to a general unsecured claim. The Opinion is available here. Administrative claims are an integral part of the bankruptcy process and have been written about in prior blog postings:
Decision in Goody’s Holds That Administrative Claims Under 503(b)(9) Apply to Goods, Not Services
Background
Prior to the Debtors’ Petition Date (9/9/2014), a jury awarded Mr. Tapal Sarker damages of $47,500 for the Debtors’ violations of the FMLA in his firing. On June 13, 2014, Mr. Sarker filed motions with the New Jersey District Court to amend the FMLA Judgment to include pre-and post-judgment interest as well as attorneys’ fees and costs. Opinion at *2. Mr. Sarker sought and obtained relief from the automatic stay to proceed with his District Court action, and on December 1, 2014, the District Court amended the FMLA Judgment as requested by Mr. Sarker and ordered the Debtors’ bank to wire the jury award ($47,500) to Mr. Sarker. The fees, costs and interest totaled an additional $105,561.73 (the “Costs”). Opinion at *3.
Mr. Sarker filed a motion to have the Costs treated as an administrative claim pursuant to 503(b)(1)(A)(ii). The Debtors objected seeking to have the Costs reclassified as a general unsecured claim.
The Opinion
Judge Gross began his analysis by reciting 11 U.S.C. 503(b)(1)(A)(ii), which provides:
(ii) wages and benefits awarded pursuant to a judicial proceeding or a proceeding of the National Labor Relations Board as back pay attributable to any period of time occurring after commencement of the case under this title, as a result of a violation of Federal or State law by the debtor, without regard to the time of the occurrence of unlawful conduct on which such award is based or to whether any services were rendered
Opinion at *5 (italics in original).
Judge Gross summarizes the reasons for his ruling in two parts: (1) the Costs do not constitute “wages and benefits” and are thus outside the scope of 503(b)(1)(A)(ii), and (2) the Costs do not constitute “back pay attributable to any period of time after commencement of the case.” Opinion at *5-6. While he fleshes out each of his reasons, he cites to the Third Circuit for the principle that “the Court must give ‘the words used [in a statute] their ordinary meaning.'” Opinion at *6 (citing United States v. Diallo, 575 F.3d 252, 257 (3d Cir. 2009)).
Judge Gross also addressed the Sarker claims attempted to have the Costs considered as “wages, salaries or commissions” pursuant to Section 507(a)(4). Opinion at *10. However, the Court again looked to the ordinary meaning of the statute, finding that the Costs did not qualify as “Section 507(a)(4) is clearly meant to encompass employment-based compensation”. Opinion at *10.
My $.02
When seeking relief from the Bankruptcy Court, you always want to consider the plain meaning of the statutes upon which you rely. If the statutes’ plain language doesn’t get you where you want to be, you need to provide case law supporting your position. It is possible that with persuasive case law to rely upon, Judge Gross would have gone the other way in his analysis. As he stated, “Mr. Sarker has cited no cases extending Section 507(a)(4) priority status to attorneys’ fees, costs, or interest and the Court has found none.” Opinion at *10. The Delaware Bankruptcy Court has shown, in this case and in others, that it strongly prefers to maintain predictability by following precedent when it exists.