Published on:

Second Circuit limits power of bankruptcy court to address ERISA plans

Charlotte Bankruptcy Lawyer Bryan W. Stone of Arnold & Smith, PLLC answers the question “What is Chapter 7 Bankruptcy?”

 

In a case watched closely by bankruptcy insiders, the Second Circuit United States Court of Appeals issued a ruling on Monday that appears to restrict the jurisdiction of United States Bankruptcy Courts.

Court of Appeals Charlotte Bankruptcy Attorney Mecklenburg Chapter 7 LawyerThe case involved the use of assets from a 401(k) retirement plan administered pursuant to the Employee Retirement Income Security Act (ERISA) “to pay for a Chapter 7 bankruptcy trustee and professionals retained by the trustee.”

The bankruptcy trustee—Kenneth Kirschenbaum—engaged lawyers and accountants to assist in disposing of assets that were the property of employees of Robert Plan Corp. The Bethpage, New York-based automobile insurance company originally filed for bankruptcy in 2008.

Fees generated by Kirschenbaum and the lawyers and accountants exceeded the amount of assets included in Robert Plan Corp.’s bankruptcy estate. Kirschenbaum therefore sought to use assets from the 401(k) plans to pay for the legal and financial advice rendered in the case.

The United States Department of Labor filed an objection, arguing that the bankruptcy court lacked the jurisdiction to approve Kirschenbaum’s requests. A federal district court agreed with the Government, and Kirschenbaum appealed.

The Second Circuit Court of Appeals sided with the Government, affirming the district court’s decision and finding that United States bankruptcy law “explicitly excludes ERISA plan assets from a debtor’s bankruptcy case.”

The administration of ERISA plans—and the compensation payable to administrators of the plans—are issues that arise outside of bankruptcy, the court observed. Compensation payable to administrators of plans “does not depend upon bankruptcy for its existence, nor does it involve an administrative matter that arises only in bankruptcy cases,” the Second Circuit found, according to Insurance News Net.

Traditionally, bankruptcy courts have exercised jurisdiction over a wide range of matters connected to the bankruptcy estates of debtors. In recent years, however, courts have wrestled with a number of challenges to the courts’ exercise of jurisdiction over “non-core” bankruptcy issues.

In the Robert Plan Corp. case, the issue of compensation for professionals associated with managing ERISA plans was a “non-core” bankruptcy issue, the appeals court found. Addressing the compensation of professionals associated with administering the ERISA plans did not “invoke substantive rights created by federal bankruptcy law,” the Second Circuit ruled.

Compensation payable to ERISA plan administrators is not something that typically arises in the context of a bankruptcy, the appeals court reasoned. The United States Bankruptcy Code “merely dictates” that administrators of ERISA plans are to perform their duties pursuant to a management plan. That language, the Second Circuit ruled, was not sufficient to vest in a bankruptcy court the power to affect substantive rights under the plan.

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

If you find yourself needing the services of a Charlotte, North Carolina bankruptcy attorney, please call the skilled lawyers at Arnold & Smith, PLLC find additional resources here. As professionals who are experienced at handling all kinds of bankruptcy matters, our attorneys will provide you with the best advice for your particular situation.

 

 

About the Author

Bryan 1Bryan Stone is a Partner with Arnold & Smith, PLLC, where he focuses his practice on all aspects of bankruptcy, including: Chapter 7, Chapter 11, Chapter 13, home loan modifications and landlord-tenant issues.

A native of Macon, Georgia, Mr. Stone attended the University of Georgia, where he earned a BBA in Banking and Finance, and Wake Forest University School of Law, where he obtained his law degree.

Following law school, Mr. Stone relocated to Charlotte, where he currently serves as Chair of “Bravo!” – a young professionals organization associated with Opera Carolina – and founded the University of Georgia Alumni Association of Charlotte.

In his spare time, Mr. Stone enjoys perfecting his barbeque skills for the annual “Q-City BBQ Championship” and playing softball in the Mecklenburg County Bar softball league.

 

 

Sources:

http://insurancenewsnet.com/innarticle/2015/02/09/bankruptcy-court-jurisdiction-limited-appeals-court-rules-a-592274.html#.VNkomfnF9qU

 

 

Image Credit:

http://commons.wikimedia.org/wiki/File:US-CourtOfAppeals-2ndCircuit-Seal.png

 

 

See Our Related Video from our YouTube channel:

http://www.youtube.com/user/ArnoldSmithPLLC?feature=watch

 

 

See Our Related Blog Posts:

Supreme Court Considers Case Concerning Limits Of Bankruptcy Judges’ Power

Lender seeks to overturn decision that allows debtors to “strip off” second mortgages