7th Circuit rules for masonry workers in employee benefit plan dispute

Does the priority limitation found in the Bankruptcy Code apply to every fund that seeks unpaid contributions? Or must the claims of all funds sponsored by the bankrupt employer be aggregated?

The 7th Circuit Court of Appeals sided with more than a dozen masonry workers in answering that question in a Monday decision, concluding that Section 507(a)(5) of the code does not require assessing distinct benefit plans collectively.

The appellate court affirmed the U.S. District Court of the Northern District of Indiana’s decision in In Re: Algozine Masonry Restoration, Inc., Algozine Masonry Restoration, Inc., v. Local 52 Chicago Area Joint Welfare Committee for the Pointing, Cleaning and Caulking Industry, et al., 20-3384, finding that the text of Section 507(a)(5) unambiguously supports the lower court’s conclusions.

Algozine Masonry Restoration Inc., a tuckpointing and masonry restoration company, employed members of the Chicago Area Pointing, Cleaning and Caulking Industry Union, Local 52. In a collective bargaining agreement with the union, Algozine was required to submit contributions to three employee benefit funds on behalf of employees who performed work covered by the CBA, including the welfare, pension and annuity funds. All of the funds were multi-employer benefit funds that were administered pursuant to the Employee Retirement Income Security Act of 1974.

Issues arose for Algozine when it fell behind on its contributions to the funds and, in November 2016, filed a Chapter 11 bankruptcy petition. The funds filed separate proofs of claims under Section 507(a)(5) for Algozine’s unpaid contributions on behalf of 15 employees each for the welfare and pension funds, seeking $65,658.83 and $56,057.90, respectively. They also filed for employees for the annuity fund, seeking $34,621.36.

The funds later amended those requests down to $21,334.30, $18,453.40 and $11,607.16, for a total of $51,394.86. But Algozine argued the funds had not accounted for payments made by Algozine or third parties within the 180-day period preceding the bankruptcy petition.

Regardless, Algozine unsuccessfully argued that the total amount should be reduced to $5,556.34, contending the funds erred by applying the priority cap that appears in Section 507(a)(5) to each individual fund’s claims rather than the funds’ aggregate claims.

“Despite Algozine’s best efforts to muddy the waters, section 507(a)(5) is straightforward. It allows ‘each such’ employee benefit plan to file priority claims for services rendered within the applicable period. The priority cap is determined by multiplying the number of employees covered by ‘each such plan’ by $12,850. From that number, the plan must subtract the aggregate amount paid under section 507(a)(4) in addition to payments made to any other employee benefit plan,” Circuit Judge Diane Wood wrote for the 7th Circuit.

Observing that none of Algozine’s employees made claims under Section 507(a)(4), the 7th Circuit thus disregarded that variable. The net result, it found, was that each fund’s individual priority claims were well within Section 507(a)(5)(B)’s limitation.

“As the Bankruptcy Court observed, section 507(a)(5) ‘clearly contemplates that, in a single bankruptcy case, more than one ‘employee benefit plan’ may file a claim, i.e. ‘claims for contributions’ and that the priority limit set forth therein applies to ‘each such plan’; which, could only refer to — each claim that is filed in the case by, or on behalf of, an employee benefit plan.’ We have nothing to add to that reasoning,” Wood concluded.

On a final point, the appellate panel found no indication that Section 507(a)(5) is tied to actual hours worked by each individual employee. It made that decision in response to Algozine’s waived argument that some employees who received benefits from the funds did not render services within the applicable period and, thus, did not work enough hours to be included in the funds’ priority claims.

“Just the opposite: ‘[a] plain reading of § 507(a)(5) demonstrates that it provides an aggregate limit on recovery under that provision[,]’ tied to the total number of employees,” the panel wrote.

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