Case 19-11728-ref Doc 193 Filed 05/07/19 Entered 05/07/19 ... · Case 19-11728-ref Doc 193-1 Filed...

Case 19-11728-ref Doc 193 Filed 05/07/19 Entered 05/07/19 17:36:22 Desc Main Document of 2

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UNITED STATES BANKRUPTCY COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

In re:

Reading Eagle Company, et al.1,

Debtors.

Chapter 11

Case No. 19-11728-REF

(Jointly Administered)

MOTION OF THE DEBTORS FOR ORDER AUTHORIZING THE DEBTORS

TO PAY AMOUNTS WITHHELD PREPETITION FROM EMPLOYEE WAGES

Reading Eagle Company (“Reading Eagle”) and WEEU Broadcasting Company

(“WEEU,” and together with Reading Eagle, the “Debtors”), the debtors-in-possession in the

above-captioned chapter 11 cases (the “Cases”), hereby move the Court (the “Motion”) for entry

of an order, pursuant to sections 105(a) and 541(d) of title 11 of the United States Code (the

“Bankruptcy Code”), authorizing the Debtors to pay certain amounts that were withheld

prepetition from employee wages but not remitted to their intended recipient (the “Prepetition

Withholdings”). In support of the Motion, the Debtors rely upon the concurrently filed

Declaration of Lori Ford-Colon (the “Wage Withholding Declaration”), which is incorporated

herein by reference. In further support of this Motion, the Debtors respectfully state as follows:

JURISDICTION

1. The United States Bankruptcy Court for the Eastern District of Pennsylvania (the

“Court”) has jurisdiction over these Cases and the Motion pursuant to 28 U.S.C. §§ 157 and

1334. Venue of these Cases and the Motion in this district is proper under 28 U.S.C. §§ 1408 and

1409.

2. Pursuant to Rule 9014-2(b)(2) of the Local Rules of Bankruptcy Procedure of the

1 The last four digits of Debtor Reading Eagle Company’s tax identification number are 3740. The last four digits of

Debtor WEEU Broadcasting Company’s tax identification number are 8488.

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Eastern District of Pennsylvania (the “Local Rules”), the Debtors consent to the entry of a final

judgment or order with respect to the Motion if it is determined that the Court, absent consent of

the parties, cannot enter final orders or judgments consistent with Article III of the United States

Constitution.

3. The statutory bases for the relief requested herein are sections 105(a) and 541(d)

of the Bankruptcy Code.

BACKGROUND

4. On March 20, 2019 (the “Petition Date”), the Debtors commenced voluntary

cases under chapter 11 of the Bankruptcy Code.

5. The Debtors are authorized to continue to operate their businesses and manage

their properties as debtors-in-possession pursuant to sections 1107(a) and 1108 of the

Bankruptcy Code. No trustee, examiner or statutory committee has been appointed in these

Cases by the Office of the United States Trustee for the Eastern District of Pennsylvania (the

“U.S. Trustee”).

6. In the ordinary course of business, the Debtors withhold certain amounts from the

wages of certain employees (the “Withheld Amounts”) and remit those withholdings to cover

employee contributions or obligations to: (a) the Reading Parking Authority (the “RPA”); (b) the

Communications Workers of America Pension Fund (the “CWA Pension”); (c) the Interlocal

Pension Fund (the “Interlocal Pension”); (d) the GCIU Pension Fund (the “GCIU Pension”); and

(e) the United Way (the “UW,” and together with the RPA, CWA Pension, Interlocal Pension,

GCIU Pension and the United Way, the “Withholding Creditors”).2

7. While the Debtors have continued to withhold the Withheld Amounts without

interruption, beginning on or about January 1, 2019, the Debtors ceased remitting funds to the

2 The Debtors also withhold child support payments from the earnings of an independent contractor.


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Withholding Creditors.

8. Following the Petition Date, the Debtors resumed remittances to the Withholding

Creditors, but did not pay the Withheld Amounts that accrued prepetition (the “Prepetition

Withheld Amounts”).

9. As set forth in the Wage Withholding Declaration, the Prepetition Withheld

Amounts are as follows:

Creditor Prepetition Withheld Amount

RPA $10,881

CWA Pension $4,437

Interlocal Pension $2,579.17

GCIU Pension $18,541.50

United Way $10,817

Child Support $172.16

Total

$47,427.38

10. The Prepetition Withheld Amounts were not segregated and were commingled

with the Debtors’ general funds. However, at no time during this period, did the balance of the

Debtors’ general funds fall below $47,427.38.

11. In this context, the Prepetition Withheld Amounts – and particularly the amounts

subject to an express trust pursuant to RISA – are likely not property of the Debtors’ bankruptcy

estates. However, to preserve relationships with employees whose wages were deducted and to

preserve estate resources by resolving a potentially costly dispute, the Debtors seek authority to

pay the Prepetition Withheld Amounts to the Withholding Creditors.


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REQUEST FOR RELIEF

12. By this Motion, the Debtors seek an order authorizing the payment of the

Prepetition Withheld Amounts to the Withholding Creditors.

BASIS FOR RELIEF

13. Section 541(d) provides in pertinent part as follows:

Property in which the debtor holds, as of the commencement of the case, only

legal title and not an equitable interest … becomes property of the estate … only

to the extent of the debtor’s legal title to such property, but not to the extent of

any equitable interest in such property that the debtor does not hold.

11 U.S.C. § 541(d).

14. The Employee Retirement Income Security Act (ERISA) provides that “all assets

of an employee benefit plan shall be held in trust....” In re Lexington Healthcare Grp., Inc., 335

B.R. 570, 575 (Bankr. D. Del. 2005) (quoting 29 U.S.C. § 1103(a)).

15. Bankruptcy courts in this Circuit have held that “employee wages which are

withheld for the purpose of contributing to an employee benefit plan are assets of the plan held in

trust for the employees from the moment they are withheld.” See, e.g., In re Lenox Healthcare,

Inc., 343 B.R. 96, 102 (Bankr. D. Del. 2006).

16. However, where withheld but unremitted funds are commingled with general

funds, some nexus to the withheld funds must be established before a trust may be imposed and

the question of estate property can be resolved. Lexington Healthcare, 335 B.R. at 578-80.

17. A sufficient nexus may be found, “even if the monies were not segregated,

provided that the monies were available in the Debtor’s general funds.” Id. at 576 (quoting In re

College Bound, Inc., 172 B.R. 399, 404 (Bankr. S.D. Fla. 1994).

18. Because the Prepetition Withheld Amounts were at all times material hereto

available in Reading Eagle’s general funds, a sufficient nexus likely exists and thus such


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amounts are likely not property of the Debtors’ estates under Section 541(d) of the Bankruptcy

Code. See id.

19. Greater ambiguity surrounds the Prepetition Withheld Amounts which are not

subject to an express trust pursuant to ERISA. A trust relationship may arise “when the parties

manifest an intention to create a trust.” In re Columbia Gas Systems, Inc., 997 F.2d 1039, 1060

(3d Cir.1993), cert. denied, 510 U.S. 1110, 114 S.Ct. 1050, 127 L.Ed.2d 372 (1994) (noting that

without a definitive document establishing a trust, courts “look to the langue of the parties, their

conduct and other circumstances surrounding the transaction” to determine intent).

20. Rather than engage in costly fact-finding and potential litigation regarding the

nexus requirement or conduct manifesting intent, which costs would far outpace the Prepetition

Withheld Amounts themselves, the Debtors seek authority to pay Prepetition Withheld Amounts

to the Withholding Creditors, preserve relationships with the employees, and ultimately preserve

estate resources.3

NOTICE

21. Notice of this Motion has been or will be given to (a) the Office of the United

States Trustee for the Eastern District of Pennsylvania; (b) the Commonwealth of Pennsylvania

Department of Revenue; (c) all local taxing authorities; (d) the Internal Revenue Service; (e) the

entities listed on the Consolidated List of Creditors Holding the 20 Largest Unsecured Claims

filed by the Debtors pursuant to Bankruptcy Rule 1007(d); (f) the Withholding Creditors or their

counsel; the Federal Communications Commission; (g) the banks in which the Debtors maintain

their bank accounts; and (h) all parties who, as of the filing of this Motion, have filed a notice of

appearance and request for service of papers pursuant to Bankruptcy Rule 2002. The Debtors

3 The Debtors seek this relief in light of the particular factual and legal circumstances surrounding the Prepetition

Withheld Amounts without waving their right to contest the alleged imposition of a trust, or any allegation that these

or other funds are not are property of the Debtors’ estates under Section 541(d) of the Bankruptcy Code.


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submit that, in light of the nature of the relief requested, no other or further notice need be given.

CONCLUSION

WHEREFORE, for the foregoing reasons, the Debtors respectfully request that the Court

enter an order, substantially in the form attached hereto, authorizing, the Debtors to pay the

Prepetition Withheld Amounts to the Withholding Creditors and granting related relief.

Dated: May 7, 2019 STEVENS & LEE, P.C.

By: /s/ Robert Lapowsky

Robert Lapowsky

Evan Coren

620 Freedom Business Center, Suite 200

King of Prussia, PA 19406

Telephone: (215) 751-2866

Facsimile: (610) 371-7958

[email protected]

[email protected]

Proposed Attorneys for the Debtors and Debtors in

Possession


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UNITED STATES BANKRUPTCY COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

In re:

Reading Eagle Company, et al.1,

Debtors.

Chapter 11

Case No. 19-11728-REF

(Jointly Administered)

ORDER AUTHORIZING THE DEBTORS TO PAY

AMOUNTS WITHHELD PREPETITION FROM EMPLOYEE WAGES

Upon the motion (the “Motion”),2 of the debtors and debtors in possession (the

“Debtors”), pursuant to sections 105(a) and 541(d) of title 11 of the United States Code (the

“Bankruptcy Code”), authorizing the Debtors to pay certain amounts that were withheld

prepetition from employee wages but not remitted to their intended recipient (the “Prepetition

Withholdings”); and the Court having jurisdiction to consider the Motion and the relief requested

therein in accordance with 28 U.S.C. § 1334; and consideration of the Motion and the relief

requested therein being a core proceeding pursuant to 28 U.S.C. § 157(b); and venue being

proper before this Court pursuant to 28 U.S.C. §§ 1408 and 1409; and no trustee, examiner, or

statutory creditors’ committee having been appointed in these chapter 11 cases; and due and

proper notice of the Motion having been provided, and it appearing that no other or further notice

need be provided; and a hearing having been held to consider the relief requested in the Motion

(the “Hearing”); and the record of the Hearing, and all of the proceedings had before the Court;

1 The last four digits of Debtor Reading Eagle Company’s tax identification number are 3740. The last four digits of

Debtor WEEU Broadcasting Company’s tax identification number are 8488. 2 Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the

Motion.

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and any objections to the Motion having been withdrawn or overruled; and the Court having

found and determined that the relief sought in the Motion is in the best interests of the Debtors,

their estates and creditors, and all parties in interest, and that the legal and factual bases set forth

in the Motion establish just cause for the relief granted herein; and after due deliberation and

sufficient cause appearing therefor,

IT IS HEREBY ORDERED THAT:

1. The Motion is GRANTED.

2. The Debtors are authorized to pay the Prepetition Withheld Amounts to the

Withholding Creditors identified in the Motion.

3. The Debtors’ financial institutions are authorized, at the Debtors’ request, to

receive, honor, process, and pay any and all checks and electronic transfers related to the

Prepetition Withheld Amounts, whether presented before or after the Petition Date, provided that

the Debtors have sufficient good funds standing to the Debtors’ credit with such Bank in the

applicable accounts to cover such payments.

4. Nothing in the Motion or this Order, or the Debtors’ payment of any claims

pursuant to this Order, shall be deemed or construed an assumption of any executory contract.

5. This Court shall retain jurisdiction with respect to all matters arising from or

relating to the interpretation or implementation of this Order.

Dated: May ____, 2019

____________________________________________

RICHARD E. FEHLING

CHIEF UNITED STATES BANKRUPTCY JUDGE

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