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Local 140 Security Fund v. Hack

March 4, 1957

LOCAL 140 SECURITY FUND, CLAIMANT-APPELLANT,
v.
WILLIAM S. HACK, TRUSTEE IN BANKRUPTCY OF SLEEP PRODUCTS, INCORPORATED, RESPONDENT-APPELLEE.



Author: Leibell

Before MEDINA and HINCKS, Circuit Judges, and LEIBELL, District Judge.

LEIBELL, D.J.: In the above entitled bankruptcy proceeding Local 140 Security Fund filed a claim for $2,400.00. It further asserted that the claim was entitled to priority as a claim for "wages" pursuant to Section 64(a)(2) of the Bankruptcy Act.*fn1 A petition to expunge the Fund's claim was filed with the Referee by the trustee of the bankrupt. Prior to a hearing on the petition, a stipulation of facts was entered into and the amount of the claim was reduced to $993.75. The claimant's right to priority for the reduced amount, as a claim for "wages," was contested before the Referee. He sustained the trustee's contention that the claim was not a wage claim and was not entitled to priority. He allowed the claim only as a general claim.

On a petition to review the Referee's determination, the District Court sustained the Referee's ruling and entered an order accordingly. The issue is now before this Court on an appeal by the Fund from the District Court's order. The City of New York, a tax claimant, joins whth the trustee in opposing the Fund's claim to priority. So does the Government, also a tax claimant.

A form of collective bargaining agreement between Local 140 and Sleep Products, Inc. (Ex. C annexed to the Stipulation of Fact) contained the usual provisions in relation to the hiring of employees, hours of employment, rates of compensation, days to be defined as legal holidays, vacation pay, and the deduction from the wages of the employee of an appropriate amount for "dues" payable to the Union.

Paragraph Thirty-second of the agreement contained provisions for payments to be made by the employer to Local 104 Security Fund and reads as follows:

"THIRTY-SECOND: The Employer hereby agrees, as long as this agreement remains in effect, to pay monthly on or before the tenth day of each month, a sum equal to 6% of the monthly gross payroll of the employees in the bargaining unit, to Local 140 Security Fund, for the purpose of financing a Security Plan for the benefit of the employees of the Employer within the bargaining unit. At the same time the Employer shall forward a report setting forth the figures upon which payment is based.

"Commencing February 15th, 1953, the Employer agrees to pay an additional one-half (1/2%) per cent to the Local 140 Security Fund, the sum to be applicable to the Welfare provisions of the Security Fund, making it a total of six and one-half (6 1/2%) per cent.

"The employer further agrees to make the aforesaid monthly remittances to the Local 140 Security Fund at its offices and that each monthly payment shall be based upon the gross payroll of the employees in the bargaining unit for the preceding month.

"It is understood that the social benefits to be provided will meet the requirements of all applicable laws and will satisfy the Employer's obligations under the New York State Disability Law, without further obligation on the part of the Employer.*fn2

"It is agreed that Local 140 Security Fund will be administered in compliance with the provisions of all applicable laws."

The Referee, in expunging the claim as a priority claim, based his decision on Judge Brennan's ruling in a similar case, Matter of Brassel, 135 F.Supp. 827 (Northern District of New York).

In the Brassel case Judge Brennan held that a creditor, a union welfare trust fund, making a claim against Brassel's estate based on his failure as an employer to pay to the union's welfare fund 5% of the gross payroll of all employees covered by a collective bargaining agreement, was not entitled to priority on its claim as a wage claim.

In affirming Referee Lowenthal's order in the case at bar Judge Herlands wrote a well-considered opinion (141 F.Supp. 463) and concluded that any enlargement of the term "wages" in Section 64(a)(2) of the Bankruptcy Act, so as to include payments made by an employer to a Welfare Fund under a collective bargaining agreement, should be left to Congressional action through an amendment to the Act. To support that view he cites what the New York State Legislature did in 1952, in amending Section 22 of the Debtor and Creditor Law to include in the definition of "wages or salaries" the contributions of employers to insurance or welfare benefits, and to pension and annuity funds. Claims of Welfare Funds for unpaid sums due from the employer are granted a preference in the administration of the estate of an employer who makes a General Assignment for the benefit of his creditors under the New York statute.

Prior to the July 1952 amendment of Section 22 of the New York Debtor and Creditor Law, judges of the State Supreme Court had rendered conflicting opinions on the right of a Welfare Fund to a preference similar to the preference given wage claims in a proceeding under a General Assignment.*fn3 In the Federal Court we now have conflicting opinions in the District ...


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