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In Re: Marcal Paper Mills

June 16, 2011

IN RE: MARCAL PAPER MILLS, INC., APPELLANT


On Appeal from the United States District Court for the District of New Jersey (D.C. No. 2-09-cv-01863) District Judge: Honorable Stanley R. Chesler

The opinion of the court was delivered by: Sloviter, Circuit Judge.

PRECEDENTIAL

Argued February 16, 2011

Before: SLOVITER and HARDIMAN, Circuit Judges and JONES,*fn1 District Judge

OPINION OF THE COURT

This appeal, which arises from a bankruptcy proceeding, presents only one issue, but it is an issue of first impression in this Circuit and requires interpretation and reconciliation of two important and complex federal statutory schemes and their underlying policies. Specifically, it requires us to decide whether under the Employee Retirement Income Security Act ("ERISA"), as amended by the Multiemployer Pension Plan Amendments Act ("MPPAA"), the portion of withdrawal liability that is attributable to the post-petition time period constitutes an administrative expense entitled to priority under the Bankruptcy Code. The District Court, overturning the Bankruptcy Court decision, held that it does and that the post-petition portion of the multiemployer fund‟s withdrawal liability claim against debtor Marcal Paper Mills, Inc. was entitled to priority. Marcal Paper Mills, LLC (hereafter "Marcal LLC"), who purchased the assets of the debtor Marcal Paper Mills, Inc. (hereafter "Marcal") and assumed liability for this claim, appeals, arguing that the entire claim for withdrawal liability should be classified as a general unsecured claim.

I.

Marcal, which manufactured paper products, operated a fleet of trucks to distribute its products. The truck drivers employed by Marcal were members of Teamsters Union Local 560. Local 560 was the collective bargaining representative for those employees and, over the years, entered into a series of collective bargaining agreements ("CBAs") with Marcal. As part of the CBAs, Marcal was required to participate in the Trucking Employees of North Jersey Welfare/Pension Fund ("TENJ Pension Fund" or "Fund") -- a multiemployer defined benefit pension fund.

On November 30, 2006, Marcal filed a Chapter 11 bankruptcy petition and Marcal operated as a debtor-in- possession ("DIP") from that date, continuing to employ members of Local 560. The CBA governing the employees‟ work and requiring Marcal‟s participation in the TENJ Pension Fund did not expire until September 15, 2007. Aware that the CBA was set to expire, on August 16, 2007, DIP Marcal and Local 560 entered into a Memorandum of Understanding continuing the terms of the CBA until a new contract could be negotiated. The parties were never able to negotiate a new contract. Nevertheless, because the CBA and pension plan were continued and DIP Marcal continued to employ covered employees, those employees accrued pension credits and the corresponding benefits. In addition, under the continued-CBA DIP Marcal was required to satisfy its TENJ Pension Fund obligations. One of those obligations was that DIP Marcal continue to make contributions to the TENJ Pension Fund on behalf of covered employees. DIP Marcal made all such contributions from November 30, 2006, the date of its Chapter 11 petition, until May 30, 2008, when DIP Marcal‟s assets were sold to Marcal Paper Mills, LLC. From that date, Marcal LLC ceased to employ Local 560 truck drivers. Accordingly, there is no dispute that Marcal LLC had no obligation to make contributions or provide benefits associated with work after May 30, 2008.

As a consequence of DIP Marcal‟s cessation and the fact that Marcal LLC did not employ Local 560 drivers, the TENJ Pension Fund determined that DIP Marcal had made a "complete withdrawal" from the pension fund within the meaning of ERISA, as amended by the MPPAA. The TENJ Pension Fund assessed Marcal with $5,890,128 in total withdrawal liability. On July 29, 2008, the TENJ Pension Fund filed a claim in Marcal‟s bankruptcy proceeding for the entire amount of withdrawal liability as a post-petition administrative claim under 11 U.S.C. § 503(b) of the Bankruptcy Code. Marcal objected to the TENJ Pension Fund‟s claim that the withdrawal liability be classified as an administrative expense and filed a motion to reclassify it as a general unsecured claim. In response, the TENJ Pension Fund altered its claim and only sought administrative priority for that portion of the withdrawal liability attributable to post- petition services provided by Local 560 employees to DIP Marcal.

Notwithstanding, the Bankruptcy Court rejected TENJ Pension Fund‟s claim and reclassified the entire withdrawal liability claim as a general unsecured claim. The District Court subsequently reversed and held that the portion of the withdrawal liability attributable to the post-petition period was entitled to priority. It remanded the matter to the Bankruptcy Court to calculate how the claim should be apportioned between pre- and post-petition periods. Trucking Emps. of N. Jersey Welfare Fund, Inc., v. Marcal Paper Mills, Inc., 2009 WL 3681897, at *8 (D.N.J. Nov. 2, 2009). Marcal LLC appeals.

II.

The District Court had jurisdiction over the appeal of the Bankruptcy Court‟s classification of the claim pursuant to 28 U.S.C. § 158(a)(1) and 28 U.S.C. § 1334(a). Under 28 U.S.C. § 158(d)(1), we have jurisdiction of "appeals from all final decisions, judgments, orders, and decrees entered" by a district court pursuant to its authority to hear appeals from final judgments, orders, and decrees entered by a bankruptcy court. We have held that because of the unique nature of bankruptcy cases, finality under § 158(d)(1) should be viewed "in a more pragmatic and less technical way" than it would under 28 U.S.C. § 1291. F/S Airlease II, Inc. v. Simon (In re F/S Airlease II, Inc.), 844 F.2d 99, 103 (3d Cir. 1988).

To determine whether a decision is final, we consider three factors: (1) "the impact of the matter on the assets of the bankruptcy estate," (2) "the preclusive effect of a decision on the merits," and (3) "whether the interests of judicial economy will be furthered." Id. at 104. Consistent with Supreme Court precedent, we hold that the District Court‟s decision classifying the post-petition portion of withdrawal liability as an administrative expense was final, and that judicial economy is served by resolving this issue now, rather than after the estate has been conclusively divided. See Howard Delivery Serv. v. Zurich Am. Ins. Co., 547 U.S. 651, ...


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