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Anthony v. Goldring

September 26, 1996

RONALD ANTHONY,

APPELLANT

v.

INTERFORM CORP.

STEPHEN I. GOLDRING,

TRUSTEE



On Appeal from the United States District Court for the Western District of Pennsylvania

(D.C. No. 95-cv-00061)

BEFORE: SLOVITER, Chief Judge, COWEN and ROTH Circuit Judges

COWEN, Circuit Judge.

Submitted Pursuant to Third Circuit LAR 34.1(a)

July 16, 1996

Filed September 25, 1996)

OPINION OF THE COURT

In this case of first impression we must decide whether 502(b)(7) of the Bankruptcy Code can limit the recovery of a pre-petition judgment creditor in a Chapter 11 bankruptcy proceeding when the creditor's claim arose from the wrongful termination of an employment contract that had been breached over two years before the bankruptcy petition was filed. We must also decide whether the bankruptcy court's decision to deny without prejudice Ronald Anthony's first motion to dismiss Interform Corporation's bankruptcy petition amounted to a procedural due process violation. We find Anthony's due process argument to be without merit. We further hold that the plain language of 11 U.S.C. Section(s) 502(b)(7) mandates that Anthony's claim be reduced to one-year's pay plus benefits under the terms of the statute. Accordingly, we will affirm the September 6, 1995 judgment of the district court, which upheld the bankruptcy court's reduction of Anthony's unsecured claim from $656,316 to $155,160, pursuant to the terms of Section(s) 502(b)(7).

I.

The material facts concerning Anthony's claim are not in dispute. On September 30, 1988, Interform hired Anthony for a term of employment that was to last until December 31, 1993. Under the agreement, Anthony was to receive an annual salary of $120,000 plus certain benefits. On December 31, 1990, the agreement was amended to increase Anthony's annual salary to $150,000. His term of employment was also extended for two more years. Despite this purported extension, Anthony was terminated in September of 1991.

Anthony contested Interform's action and his grievance was submitted to arbitration. On August 27, 1993, an arbitration award was entered in his favor in the amount of $656,316, for the damages resulting from the termination of his employment contract. Anthony subsequently obtained a judgment in this amount in the Court of Common Pleas of Allegheny County, Pennsylvania. Anthony's attempt to execute upon the judgment, however, was impeded when Interform filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code on January 12, 1994. On March 17, 1994, Anthony filed a motion pursuant to 11 U.S.C. Section(s) 1112(b) to dismiss Interform's bankruptcy petition. He alleged that Interform had filed the petition in bad faith and with the intention of abusing the judicial process. The bankruptcy court held a hearing on this issue on April 19, 1994. At the conclusion of the hearing, the court issued an order denying the motion to dismiss without prejudice. On May 10, 1994, Anthony filed a proof of claim in the amount of the judgment he obtained from the Court of Common Pleas.

On May 17, 1994, Interform filed a proposed plan of reorganization and disclosure statement. Two amended plans were filed subsequently. Interform filed an objection to Anthony's claim on June 8, 1994. On July 14, 1994, the bankruptcy court entered an order approving the second amended disclosure statement and scheduled a hearing on confirmation of the second amended plan for August 17, 1994. On August 23, 1994, the bankruptcy court entered an order confirming the plan of reorganization.

On August 11, 1994, Anthony filed his second motion to dismiss Interform's bankruptcy petition. A hearing on this matter was held on September 27. On December 13, 1994, the bankruptcy court entered separate orders; one reduced the recovery Anthony was eligible to obtain for his wrongful termination under the terms of 11 U.S.C. 502(b)(7), and the other denied his Section(s) 1112(b) motion to dismiss. The district court affirmed the judgment of the bankruptcy court in an order dated September 6, 1995. This appeal followed.

II.

The district court had jurisdiction pursuant to 28 U.S.C. 158(a). We have jurisdiction under 28 U.S.C. Section(s) 158(d) and 1291. "Our review of the district court's interpretation of the Bankruptcy Code is plenary[,]" Pennsylvania Higher Educ. Assistance Agency v. Faish (In re Faish), 72 F.3d 298, 301 (3d Cir. 1995), cert. denied, No. 95-8660, 64 U.S.L.W. 3837 (U.S. June 17, 1996), as is our review of Anthony's claim that his ...


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