University of Baltimore Law Forum Volume 18 Article 17 Number 1 Fall, 1987

1987 Recent Developments: For Halifax Packing Co. v. Coyne: Severance Pay Benefits Do Not Flow from Erisa in Instances of Plant Closings Steven E. Sunday

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Recommended Citation Sunday, Steven E. (1987) "Recent Developments: For Halifax Packing Co. v. Coyne: Severance Pay Benefits oD Not Flow from Erisa in Instances of Plant Closings," University of Baltimore Law Forum: Vol. 18 : No. 1 , Article 17. Available at: http://scholarworks.law.ubalt.edu/lf/vol18/iss1/17

This Article is brought to you for free and open access by ScholarWorks@University of Baltimore School of Law. It has been accepted for inclusion in University of Baltimore Law Forum by an authorized editor of ScholarWorks@University of Baltimore School of Law. For more information, please contact [email protected]. Yadkin Valley Bank & Trust Co. tI. was not administered expeditiously, nor the damages, the trustee would be McGee: BANKRUPTCY TRUSTEE was the administration in the best interest immune. To the contrary, if the trustee's ABSOLVED OF PERSONAL of the parties. The bankruptcy court acts were deemed negligent, willful and UABILITY ABSENT WILLFUL granted the defendant's motion for sum­ deliberate, then immunity would not be MISCONDUCT mary judgment, holding that a trustee had applicable. Thus, becauSe the controversy absolute immunity from suit in this case. centered on questions of fact the United It was recently held by the United States The United States District Court affirmed States Court of Appeals remanded for fur­ Court of Appeals, in Yadkin Valley Bank & the lower court decision. ther findings. Trust Co. '0. McGee _ F.2d _ (4th Cir. On appeal the United States Court of Generally, the bankruptcy laws were 1987), that a bankruptcy trustee, although Appeals, sought to define the specwc designed to help the debtor or the debtor's appointed by a federal court, does not have immunity that a trustee has in bankruptcy. business survive financial crisis. The trus­ absolute immunity while adminstering a The issue is clearly reviewable by the court tee is appointed to aid in this procedure bankrupt estate. The court of appeals which held that trustees in bankruptcy do and his duties are statutorily defined in the reversed the district court's affirmance of not hold an absolute immunity to suit. United States Code Annotated. However, the Bankruptcy Court ruling and has The court relied on a case previously trustees should be aware that although remanded the case for further factual find­ decided by it which held that, appointed by the court, their actions are ings. not absolutely immune. Although it On July 15, 1981 John and Ruth Hut­ [w]hen acting within the discretionary appears that a trustee's immunity does chinson filed a voluntary Chapter 7 bounds of his authority, it is settled blanket his conduct to a large degree, a petition in the United States Bankruptcy that the trustee may not be held liable deliberate act outside of a trustees discre­ Court for the Middle District of North for any mistake of judgment; that his tion is not protected. Carolina. The debtors owned a dairy farm liability personally is "only for acts - Lynn R. Jfeagher and the equipment which was used to determined to be willful and deliberate operate the farm. The property had two in violation of his duties" and speci­ mortgages, the first was owned by R.A. fically that he is liable solely lease provision. meantime, lienholders of the dairy equip­ payments. Both the trustee and lessor Fort Halifax Packing Company (Fort ment began repossession proceedings. believed the debtor would be successful in Halifax) purchased an existing poultry After realizing that some of the equipment the future in lieu of the reorganization. packaging and processing plant in 1972 and had been taken from the property, However, the check was returned twice operated it for approximately nine years Holbrook reduced his offer to for insufficient funding and the plaintiff until its closing in May of 1981 for unspe­ $122,000.00. As time passed and before the sued. The court held that the trustee was cwed business reasons. The plant had been sale was consummated, Holbrook's offer not negligent in his conduct, and that at operating continuously for nearly thirty had fallen to $80,000.00. Because value of most he was guilty of a "mere mistake of years and its closing left over one hundred the land had fallen below that which judgment." United States '0. Sapp. 641 F.2d employees out of work. Eleven employees would sufficiently cover the two mort­ at 184. brought suit in Maine Superior Court gages, Trustee McGee abandoned the In summary, Sapp illustrated that when a seeking enforcement of Me. Rev. Stat. property pursuant to a court order. The trustee is acting within his authority or Ann. tit. 26, S625-B (Supp. 1986-1987). land was then foreclosed at which time it under direct order of the court in continu­ Essentially, the statute provides that any was purchased by the second mortgage ing a business in bankruptcy, he can not be employer who closes a plant with one hun­ holder, Yadkin Valley, for $78,000.00. held liable as a trustee. By being appointed, dred or more employees, or relocates a The plaintiff-appellant sued McGee for he is provided with certain authority and plant more than one hundred miles away, violating the duties of a trustee. As provid­ vested with a great deal of discretion. must provide one week's severance pay for ,ed in the United States Code Annotated, Therefore a mere mistake in judgment will each year of employment to all employees the duties of a trustee include to, "collect not result in personal liability against him. who had worked in the plant at least three and reduce to money the property of the As stated in Sapp, for a trustee to be held years. The employer is excused from this estate for which such trustee serves, and personally liable he must be acting outside provision if the employee accepts employ­ close such estate as expeditiously as is com­ of his authority. ment at the new location or is covered by patible with the best interests of parties in In the case at bar the question was a labor contract which deals with the issue interest." 11 U.S.C.A. S704(1) (Supp. whether McGee's failure to expedite the of severance pay. 1987). Yadkin alleged that McGee's con­ sale of the farm constituted negligence or The Maine Director of the Bureau of duct in administering the bankrupt estate a mere mistake of judgment. H it was one Labor Standards also brought an action to was negligent and that the sale of the farm of mistaken judgment, then regardless of enforce the statute and, under the terms of Fall, 1987/'I'he Law Forum-37 the statute, his action took precedence lishing a system of federal regulations to Emmert v. Hearn: "ALL MY over that of the eleven employees. Id, 107 control benefit plans, Congress hoped to PERSONAL PROPERTY" CLAUSE S.Ct. at 2212. The court rejected Fort make it easier for employers to do business CONSTRUED TO ENCOMPASS Halifax's argument that the Maine statute while at the same time protecting the pen­ TESTATOR'S TANGmLE AND was preempted by ERISA, holding that sion and benefit rights of employees. INTANGmLE PERSONAL ERISA preempted only benefit plans creat­ Examining the Maine statute in light of PROPERTY ed by employers or employee organiza­ ERISA's purposes, it was clear to the tions. Since this case involved a benefit Court that none of the Congressional con­ The Court of Appeals of Maryland in plan which arose by operation of state law, cerns were present in this case. Id. at 2213. Emmert v. Hearn, 309 Md. 19, 522 A.2d ERISA did not apply and there was no Finally, the Court noted that another 377 (1987), held that a testator's intangible, preemption problem. purpose of ERISA was to mandate disclo­ as well as tangible, personal property pass­ The Supreme Court, while affirming the sure requirements, thus providing safe­ ed to his surviving children under a para­ judgment of the Maine Supreme Judicial guards "with respect to the establishment, graph in a will that read: "I bequeath all Court, rejected their rationale. Under the operation, and administration of my personal property to my surviving Maine court's analysis, states could set up (employee benefit) plans." 29 U.S.c. children." In so holding, the court of benefit plans because only employers and §1001(a) (1982). Since there were no appeals affirmed the court of special employee organizations were barred by administrative regulations or continuous appeals' reversal of the circuit court ruling. ERISA from doing so. What the Maine activities involving a "plan" under the George Roberts, the testator, died in court· failed to recognize, however, was Maine statute, disclosure would be mean­ 1981. He was survived by seven children. that such an analysis was in direct conflict ingless and safeguards unneccessary. His wife had predeceased him eleven years with the Congressional purpose for enact­ The Court's decision in Fort Halifax prior, and a son had died in 1971, leaving ing ERISA. Congress wanted to establish a allows states to provide statutory benefits one child. Roberts left a will (executed in uniform set of administrative practices in to employees as long as they require no 1977) in which he bequeathed all of his dealing with employee benefits, thereby continuous administration constituting a personal property to his surviving children eliminating conflicting regulatory require­ benefit plan. to be divided equally. ments. By allowing states to set up benefit - Steven E. Sunday The estate of George Roberts, at the plans sua sponte there could still be serious conflicts between state benefit plans and benefit plans provided for by ERISA. Recognizing the fallacy· of the lower court's reasoning, the Supreme Court took a different approach. The Court held that the Maine statute was valid because it nei­ ther established, nor required, employers to maintain an "employee benefit plan" as that phrase was interpreted by Congress. In so holding, the Court rejected Fort Halifax's principle argument that any state law which deals with an employee benefit listed in ERISA automatically regulates an UMaybe employee benefit plan and is therefore preempted. The Court stated three reasons for its ruling. First, the Court decided that the it will plain language of ERISA is contrary to Fort Halifax's interpretation. The preemp­ tion provision of ERISA applies only to employee benefit plans, not employee ben­ go away!' efits. The Maine statute providing for sev­ erance pay gave employees a benefit but did not establish a benefit plan. The Maine The five most dangerous words statute requires no regulatory scheme or in the English language. administrative programs that could be con­ strued as a "plan." It merely establishes a one-time payment conditioned upon the happening of a specific event. Id. at 2213. Second, the Court analyzed the legisla­ tive history and determined that Congress' principle purpose in enacting ERISA was American Cancer Society. to eliminate conflicting state and local regulations. at 2216. Companies fre­ Id. THIS SPACE OONTRIBUTED BY THE PuBlISHER AS A P\JBUC SERVICE quently conduct business in many dif­ ferent cities and states, thus making compliance with state and local regulations both burdensome and inefficient. Byestab-

38-The Law Forum/Fal~ 1987