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February 9, 2015 INN Exclusives No comments Views: 3

Bankruptcy Court Jurisdiction Limited, Appeals Court Rules

By Cyril Tuohy InsuranceNewsNet

By Cyril Tuohy
InsuranceNewsNet

A U.S. court of appeals has upheld a finding that bankruptcy courts do not have jurisdiction over the use of Employee Retirement Income Security Act (ERISA)-governed 401(k) plan assets to pay for a Chapter 7 bankruptcy trustee and professionals retained by the trustee.

In rendering its opinion, the 2nd U.S. Circuit Court of Appeals in New York said that the U.S. Bankruptcy Code, which the Bankruptcy Court used to set its jurisdiction, “merely dictates” that an ERISA plan administrator perform his or her duties in connection with being appointed to manage the plan.

The appeals court found that the Bankruptcy Code “neither alters the substantive duties of ERISA plan administrators nor establishes substantive rights regarding ERISA plans.”

In addition, the court found that U.S. bankruptcy law “explicitly excludes ERISA plan assets from a debtor’s bankruptcy case.”

“Therefore, the outcome of the proceeding relating to compensation could not conceivably have had any effect on the debtors’ estates,” the three-judge panel wrote.

A decision on this case, argued in January, was rendered by Judge Robert A. Katzmann, Judge Raymond J. Lohier Jr. and Judge Christopher F. Droney

Since ERISA plan administrator compensation is an issue that typically arises outside of bankruptcy, compensation “does not depend upon bankruptcy for its existence, nor does it involve an administrative matter that arises only in bankruptcy cases,” the court found.

Compensation in connection with managing ERISA plan assets is a “non-core” proceeding in the context of a bankruptcy court’s power as matters of compensation don’t “invoke substantive rights created by federal bankruptcy law,” the appeals court found.

Bankruptcy trustee Kenneth Kirschenbaum had sought legal and accounting help in disposing of assets belonging to employees of the Robert Plan Corp., a Bethpage, N.Y.,-based auto insurer which filed for bankruptcy in 2008.

But when Kirschenbaum and the professional advisors sought to be paid out of plan assets, and then out of the debtor’s estate since plan assets were insufficient to pay for legal and financial advice rendered in connection with the disposition of assets, the U.S. government stepped in.

Department of Labor lawyers argued that the Bankruptcy Court “lacked the jurisdiction” to approve of the trustee Kirschenbaum’s requests.

In March, the District Court agreed with the government and Kirshenbaum appealed.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

© Entire contents copyright 2015 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.

 

 

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