In a strange twist in a bankruptcy case, a businessman actually benefited financially by not paying into a pension fund for his company.
In the appeal of Barry G. Radcliffe's bankruptcy case by International Painters and Allied Trades Industry Pension Fund, No. 08-2885, International Painters appealed an order from the U.S. District Court, Northern District of Indiana, which affirmed the judgment of the bankruptcy court finding International violated bankruptcy law and had to pay damages to Radcliffe for withholding his pension payments.
Radcliffe owned a company in which he had a labor agreement to contribute to the fund; he stopped making payments, but personally guaranteed to pay. When he didn't, International got a declaratory judgment against him; before it could recover, Radcliffe filed for bankruptcy. Prior to filing bankruptcy, Radcliffe requested his pension benefits from the fund. International withheld part of his payments in order to satisfy his debt arising from the default judgment, despite his notification he believed the setoff violated the automatic stay that took effect when he filed for bankruptcy.
The bankruptcy court, which the District Court affirmed, ordered International to pay compensatory damages, interest, punitive damages, and attorney fees.
Despite being "somewhat uneasy" with the end result that affirming the lower courts' decisions means Radcliffe gets a seemingly undeserved windfall, the 7th Circuit Court of Appeals affirmed.
The federal appellate court found the setoff by the fund – withhold some pension benefits to satisfy the default judgment – violated the automatic stay under 11 U.S.C. Section 362(a)(6). International argued the benefits weren't property of the estate, so the offset was proper, and it didn't violate the statute because the letter it sent Radcliffe informing him of the offset wasn't coercive or harassing. The 7th Circuit judges disagreed, writing the letter did violate the statute because it made the decision to withhold funds without first seeking court approval, wrote Judge Terence Evans.
The fund acted willfully in its violation and Radcliffe is therefore entitled to damages.
The 7th Circuit agreed with the lower courts that the stay shouldn't have been lifted under Employment Retirement Income Security Act's anti-alienation provisions. None of the exemptions under the anti-alienation provisions apply to International and its reliance on Kennedy v. Plan Administrator for DuPont Savings and Investment Plan, 129 S. Ct. 865 (2009), is misplaced, wrote the judge. The bankruptcy judge was well within his discretion in refusing to lift the stay and to act otherwise would have been an exercise in futility, wrote Judge Evans.
The federal appellate judges also affirmed the bankruptcy court's calculation of compensatory damages for pre-petition pension benefits, the award of punitive damages, and the interest rate applied to the damage award.