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Langlais v. PennMont Benefit Services, Inc.

United States District Court, Eastern District of Pennsylvania

April 3, 2014

MELISSA LANGLAIS, et al.
v.
PENNMONT BENEFIT SERVICES, INC., et al. IN RE: REAL VEBA TRUST IN RE: SINGLE EMPLOYER WELFARE BENEFIT PLAN TRUST IN RE: PENN-MONT BENEFIT SERVICES, INC.

MEMORANDUM

McLaughlin, J.

The petitioners in Langlais v. PennMont Benefit Services, Inc., No. 11-5275 (E.D. Pa.), have filed for relief from the automatic stay of proceedings against a debtor in bankruptcy in order to seek partial release of the supersedeas bond funds posted by the respondents.

I. Background

The Langlais petitioners are the beneficiaries of employee benefit plans administered by the Langlais respondents, who are debtors in the related bankruptcy proceedings listed above. In September 2010, the respondents denied the petitioners' claim for death benefits under an employee benefit plan administered by the respondents. In September 2011, the American Arbitration Association issued an award in favor of the petitioners and against all respondents for $3.8 million, plus attorneys' fees. On July 11, 2012, this Court confirmed the arbitration award, but only against respondent PennMont Benefit Services, Inc. (“PennMont”) in its capacity as plan administrator and only as to the corpus of the REAL VEBA Trust; the Court also entered judgment in the petitioners' favor and against PennMont in the amount of $3, 800, 000.00, plus attorneys' fees and costs.[1]

The respondents filed a notice of appeal to the Third Circuit, [2] as well as a motion to stay execution of the judgment and approve a minimum supersedeas bond. This Court ordered the respondents to post a $3.9 million bond to preserve the amount due to the plan beneficiaries, which was deposited into the Court Registry for the Eastern District of Pennsylvania on October 9, 2012.

On June 7, 2013, the Third Circuit affirmed this Court's decision in its entirety. Langlais v. PennMont Benefit Servs., Inc., 527 F.App'x 215 (3d Cir. 2013). On June 21, the respondents petitioned for rehearing en banc. On July 11, the petition for rehearing was denied.

On July 23, 2013, the respondents filed voluntary Chapter 11 bankruptcy petitions in the bankruptcy court for the Eastern District of Pennsylvania.[3] Respondents also filed notice of Suggestion of Bankruptcy in the Third Circuit appeal in Langlais. Those voluntary petitions were dismissed by the Pennsylvania bankruptcy court on September 3, 2013, and any stay in effect with regard to those petitions expired on that date. In dismissing the Single Employer Welfare Benefit Plan Trust (“SEWBPT”) and Regional Employers Assurance League Voluntary Employees' Beneficiary Association Trust (“REAL VEBA”) actions for failure to comply with court requirements, the Pennsylvania bankruptcy court also denied the respondents' request for a stay “both because the Debtor is unlikely to prevail on appeal and because the balance of the equities favors the plan beneficiaries as the Debtor's delay in this case has harmed them but benefitted the Debtor . . . .”[4] The respondents appealed the bankruptcy court dismissals to this district court, but later sought voluntary dismissal of their appeals, which were dismissed with prejudice.[5]

Meanwhile, on July 17, 2013, the respondents also moved for a ninety-day stay of the Third Circuit's mandate in the Langlais appeal to allow for a petition for a writ of certiorari to the Supreme Court. On July 29, the Third Circuit granted that stay. The respondents' deadline to file a petition for a writ of certiorari to the Supreme Court expired on October 9, 2013.[6]

On October 1, 2013, just eight days before the time to petition for certiorari expired, six involuntary bankruptcy petitions under Chapter 11 of the Bankruptcy Code were filed against the Langlais respondents and related parties in the bankruptcy court for the Middle District of Florida.[7]

No notice of these proceedings was filed by the respondents in the Third Circuit appeal in Langlais, and on October 10, 2013, the Third Circuit issued its mandate in the form of a certified judgment, affirming this Court's July 2012 decision in favor of the Langlais petitioners.

Also on October 10, 2013, evidently believing that the automatic bankruptcy stay of proceedings against a debtor under 11 U.S.C. § 362 did not apply to the release of the supersedeas bond funds, on the grounds that the respondents no longer held a property interest in the funds, the Langlais petitioners filed their first motion for partial release of the funds.[8]

In the meantime, both the Independent Fiduciary and the United States Trustee filed motions to transfer venue in the Florida bankruptcy cases. After briefing and a hearing on those motions, the Florida bankruptcy court transferred the involuntary bankruptcy cases to the bankruptcy court for the Eastern District of Pennsylvania on December 6, 2013. The Florida bankruptcy court found that none of the debtors or the petitioning creditors (“Petitioning Creditors”) had provided “any valid or appropriate basis to support their choice of venue” in Florida, and that the “[Koresko Law Firm] and [Koresko & Associates] Objections, together with the Debtors' immediate consents to the Orders for Relief in the instant [Florida] cases, reflect that the Debtors are the primary, if not the sole, beneficiaries of the involuntary petitions filed in [the Florida] Court to side-step the rulings in both the Pennsylvania District Court and the Pennsylvania Bankruptcy Court.” M.D. Fl. Bankr. Transfer Op. at 14-15. The Florida bankruptcy court also found that the filing of Florida actions was both “tantamount to an impermissible change of venue for the [Department of Labor] Enforcement Action, which was properly filed in the Eastern District of Pennsylvania, ” and “an impermissible end-run around the dismissals of the Debtors' voluntary bankruptcy cases in the Pennsylvania Bankruptcy Court.” Id. at 20 & n.48. Holding that it “cannot sanction such apparent abuse of the bankruptcy process, ” the Florida bankruptcy court concluded that transfer to the Eastern District of Pennsylvania was necessary both for the convenience of all parties and in the interest of justice. Id.

The Petitioning Creditors in the bankruptcy actions first moved for reconsideration of the transfer order in the REAL VEBA, SEWBPT, and Penn-Mont Florida bankruptcy cases, which was denied. They also filed notices of appeal of the transfer orders to the District Court for the Middle District of Florida, [9]and moved for orders certifying direct appeals of the REAL VEBA and SEWBPT transfer orders to the Eleventh Circuit, which were denied by the Florida bankruptcy court on March 25, 2014.[10]

On December 18, 2013, this Court held that, because the Florida bankruptcy cases had been filed and the automatic stay went into effect nine days before the Third Circuit's mandate issued, this Court could not release the supersedeas bond funds until the stay was lifted by the bankruptcy court, or the bankruptcy proceedings otherwise concluded.[11]

On January 30, 2014, the Langlais petitioners filed a motion for relief from the automatic stay in the three above- captioned bankruptcy cases, then pending before the bankruptcy court for the Eastern District of Pennsylvania.[12]

On February 27, 2014, pursuant to 28 U.S.C. ยง 157(d), this Court withdrew the reference to the bankruptcy court for the Eastern District of Pennsylvania in the involuntary bankruptcies, concluding that coordinating the bankruptcy cases with the Department of Labor's enforcement action would reduce confusion, forum shopping and conflicting obligations between the two courts, would promote judicial efficiency ...


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