United States District Court, E.D. New York
For U.S. Department of Labor, Appellant: Leonard H. Gerson, LEAD ATTORNEY, U.S. Department of Labor, Washington, NY.
For Kenneth Kirschenbaum, Trustee, Appellee: Kenneth Kirschenbaum, Steven B. Sheinwald, LEAD ATTORNEYS, Kirschenbaum & Kirschenbaum, P.C., Garden City, NY.
OPINION AND ORDER
Sandra J. Feuerstein, United States District Judge.
Pursuant to this Court's April 9, 2013 order granting leave to appeal to the Secretary of the United States Department of Labor (the " Secretary" ), the Secretary appeals from the interlocutory portions of an order of the Honorable Robert E. Grossman, United States Bankruptcy Judge, dated August 20, 2012 (the " Compensation Order" ), which authorized the payment of fees to the Chapter 7 trustee and his retained professionals from the assets of an employee benefit plan. For the reasons that follow, the decision of the Bankruptcy Court is reversed.
A. The Bankruptcy
On August 25, 2008, The Robert Plan Corporation (" RPC" ) and The Robert Plan of New York (collectively, the " Debtors" ) each filed a petition for relief under Chapter 11 of Title 11 of the United States Code (the " Bankruptcy Code" ) in the United States Bankruptcy Court, Eastern District of New York (the " Bankruptcy Court" ). Compensation Order, at 3. On January 19, 2010, the Bankruptcy Court converted the Chapter 11 cases to cases under Chapter 7 of the Bankruptcy Code, and appointed Kenneth Kirschenbaum as Chapter 7 trustee (" Kirschenbaum" or " Chapter 7 Trustee" ). Id. at 3-4.
Upon his appointment, Kirschenbaum, as the Chapter 7 Trustee, assumed responsibility for administering the RPC Plan, as required by section 704(a)(11) of the Bankruptcy Code (" Section 704(a)(11)" ). See 11 U.S.C. § 704 (" (a) The trustee shall. . . (11) if, at the time of the commencement of the case, the debtor . . . served as the administrator (as defined in . . . the Employment Retirement Income Security Act of 1974 (" ERISA" )) of an employee benefit plan, continue to perform the obligations required of the administrator." ).
B. The Robert Plan Corporation Retirement Savings Plan
RPC sponsored an employee benefit plan, entitled The Robert Plan Corporation Retirement Savings Plan (the " RPC Plan" ), for the benefit of its employees. Compensation Order, at 4. The RPC Plan is governed by the terms of an adoption agreement, a basic plan document, and a trust agreement (collectively, the " RPC Plan Documents" ) [Docket Entry Nos. 1-14, 1-15, 1-16, 1-17], as well as ERISA, 29 U.S.C. § 1001, et. seq .
Pursuant to the RPC Plan Documents, RPC is the administrator of the RPC Plan (" Administrator" or " RPC Plan Administrator" ). The RPC Plan Documents identify the Administrator as a " named fiduciary" " for purposes of ERISA Section 402(a)(1)," RPC Plan § 19.04, which provides that the fiduciary " shall have authority to control and manage the operation and administration of the plan." 29 U.S.C. § 1102(a)(1). ERISA requires a fiduciary to exercise a " prudent man standard of care," and to " discharge his duties for the exclusive purpose of . . . providing benefits to participants and their beneficiaries," and " defraying reasonable expenses of administering the plan." 29 U.S.C. § 1104(a)(1).
The RPC Plan Documents grant the Administrator " the full power and the full responsibility to administer the Plan in all of its details, subject, however, to the requirements of ERISA." RPC Plan § 19.01. The RPC Plan Documents further
provide that " [i]n addition to the powers and authorities expressly conferred upon it in the Plan, the Administrator shall have all such powers and authorities as may be necessary to carry out the provisions of the Plan, including the discretionary power and authority to interpret and construe the provisions of the Plan." Id. The Administrator is expressly permitted to " terminate the Plan at any time . . . by written notice delivered to the [Plan] Trustee."  RPC Plan § 16.06. The RPC Plan Documents further provide that " [t]he Administrator may, by written instrument, allocate and delegate its fiduciary responsibilities in accordance with ERISA Section 405," id., which permits " named fiduciaries to designate persons other than named fiduciaries to carry out fiduciary responsibilities . . . under the plan." 29 U.S.C. § 1105(c)(1).
Under ERISA, a fiduciary is entitled to " receiv[e] any reasonable compensation for services rendered, or for the reimbursement of expenses properly and actually incurred, in the performance of his duties with the plan." 29 U.S.C. § 1108(c)(2). The RPC Plan Documents expressly authorize the Administrator to pay " all reasonable expenses (including legal, accounting, and employee communication fees) incurred by the Administrator and the [Plan] Trustee in administering the Plan and Trust . . . from the forfeitures (if any) resulting under Section 1108, or from the remaining Trust Fund." RPC Plan § 19.05.
C. Applications to the Bankruptcy Court
On May 6, 2010, June 10, 2010, and August 6, 2010 (the " 2010 Applications" ), Kirschenbaum sought authorization from the Bankruptcy Court to: (1) terminate the RPC Plan; (2) retain Kirschenbaum & Kirschenbaum, P.C. (" K& K" ), as attorneys for Kirschenbaum, Travis L. Whitfield (" Whitfield" ) as an independent auditor for Kirschenbaum, and David Witz (" Witz" ) as a pension consultant to Kirschenbaum (collectively, the " professionals" ); and (3) pay the professionals from the RPC Plan funds. Compensation Order, at 4-5. In order to pay for the administration of the RPC Plan, including the professionals' fees, Kirschenbaum applied a three percent (3.00%) surcharge to the account of each participant in the RPC Plan and segregated the proceeds of the surcharge in the " Pguy Account." Id. at 5. The Secretary objected to the 2010 Applications, arguing that the bankruptcy court lacked jurisdiction over Kirschenbaum in his capacity as administrator of the RPC Plan, and thus, could not authorize either the retention of the professionals or the payment of their fees from the Pguy Account. Id. at 4-5.
On October 26, 2010, the Bankruptcy Court overruled the Secretary's objections and held that Kirschenbaum, as Administrator of the RPC Plan pursuant to Section 704(a)(11) of the Bankruptcy Code, is subject to the Bankruptcy Court's core jurisdiction (the " October 2010 Decision" ). October 2010 Decision, at 2 (" Because [Kirschenbaum] is fulfilling his duties imposed by the Bankruptcy Code pursuant to 11 U.S.C. § 704(a)(11), [he] is subject to this Court's core jurisdiction while performing these duties." ). The Bankruptcy Court further held that it " has jurisdiction over any request by [Kirschenbaum] to retain and pay professionals to assist [him] in carrying out his duties as [RPC] Plan administrator." Compensation Order, at 5 (summarizing
October 2010 Decision). The Bankruptcy Court stated that " [w]hether the Trustee seeks to collect payment from the Plan or from the Debtor's estate has no bearing on the Court's core jurisdiction over the Trustee as Administrator, including a request for an award of fees and expenses in connection with his administration of the Plan." October 2010 Decision, at 24. The Bankruptcy Court declined to rule on whether the Chapter 7 Trustee may use RPC Plan funds to pay the fees, but noted it would " depend upon whether the services performed are compensable under the relevant ERISA statutes and the Plan documents." Id. at 26. The October 2010 Decision did not authorize the payment of any fees, but stated that " any order [awarding fees] would direct [Kirschenbaum] to first seek to satisfy the award from [ERISA] Plan funds." Id. The Secretary did not appeal the October 2010 Decision. Compensation Order, at 6.
On January 5, 2011, Kirschenbaum and the professionals filed applications for interim fee compensation. Id. On March 1, 2011, over the Secretary's objection, the Bankruptcy Court granted the applications, but " refrained from specifying whether the awards were to be paid from the [RPC] Plan assets, assets of the Debtors' estate, or some combination of both." Id. at 6-7. Pursuant to the March 1, 2011 order, Kirschenbaum paid himself thirty-four thousand dollars ($34,000.00) as interim compensation and seven hundred forty dollars and forty-two cents ($740.42) as reimbursable expenses from the Pguy Account, and eleven thousand three hundred dollars ...