2009 Chapter 11 Recent Developments (Part III)

administrative expense claim against LTV in the amount of $45,596.62 for the following: (i) $33,708.62 for the unpaid balance on a pension plan (the "DCP Component"), (ii) $7,888 in unpaid severance (the "Severance Component"), and (iii) $1,000 in backpay under the WARN Act (the "WARN Component"). The bankruptcy court denied the 2004 claim and McMillan appealed.

Issues: Whether the bankruptcy court erred in dismissing McMillan's 2004 administrative expense claim against LTV and LTV Corporation.

Rules: There is a two-part test to determine whether a claim is entitled to administrative expense priority status under § 503(b). A debt constitutes an administrative expense priority if (i) it arose from a transaction with the bankruptcy estate and (ii) it directly and substantially benefits the estate. Under the WARN Act, a union "has authority to bring claims alleging a violation of the WARN Act's provisions on behalf of its employee members... In addition, courts have recognized that a union's settlement of WARN Act claims with the employer precludes employees covered by the settlement from later bringing a claim against the employer for WARN Act violations."

Holding: Affirmed.

Reasoning:

(1)

The DCP Component. The DCP Component of McMillan's claim arose pre-petition. Therefore any liability does not constitute an administrative priority claim against the debtors. And, although McMillan waived any argument under § 1114(e)(2) by failing to raise it below, the court held that the benefit plan under which McMillan was basing his claim did not fall into § 1114(a) since the program did not provide payments for medical, surgical, or hospital-care benefits. Additionally, the court affirmed the bankruptcy court's holding that LTV was not the proper party to sue because the PBGC had taken over the administration of the relevant benefit plan.

(2)

The Severance Component and the WARN Component. The court affirmed the bankruptcy court's holding that these components were released in the 2003 Settlement agreement LTV entered into with the USWA since the USWA acted as McMillan's agent in those negotiations. The court notes that McMillan waived his right to raise an issue with regard to whether he gave the USWA his consent to settle any of his statutory claims. The consent argument is the only argument applicable to the Severance Component, and, therefore, the bankruptcy court is affirmed on that component. As for the WARN Component, McMillan argues that because he did not give a 'clear and unmistakable waiver' of his WARN Act rights, the 2003 Settlement does not apply to him. But, based on the law, the USWA's settlement with LTV constituted a waiver of McMillan's ability to sue LTV for WARN Act violations.

a.

With regard to whether "notice to a union constitutes notice to the employee member..." the court concluded that "providing notice to the USWA constituted notice to McMillan." In so finding, the court found that the USWA's relationship with McMillan was an agency relationship. "[A] principal is chargeable with the knowledge of, or notice to, his agent that is received by the agent in the due course of his employment and is related to the matters within his authority." The court agreed with courts that had applied the agency concept to relationships between unions and their members (albeit without much discussion).

Goody's Family Clothing, Inc. v. Mountaineer Property Co. II, L.L.C., et. al. (In re Goody's Family Clothing, Inc.), 401 B.R. 656 (D. Del. 2009)

Facts: Goody's Family Clothing, Inc. and certain affiliates (the "Debtors") appeal the ruling of the bankruptcy court granting certain landlords (the "Landlords") an administrative expense priority claim for unpaid stub rent. Stub rent is rent covering a period of a debtor's post-petition tenancy for which payment became due pre-petition. The Debtors argue that § 365(d)(3) applies exclusively to