Richards Layton & Finger

Third Circuit Addresses Issue of First Impression


In Marcal, the Third Circuit addressed an issue of first impression under the Employee Retirement Income Security Act (ERISA) as amended by the Multiemployer Pension Plan Amendments Act (MPPAA): Can the portion of withdrawal liability attributable to post-petition services qualify as an administrative expense of the debtor’s estate? The Bankruptcy Court said no, the district court said yes, and the Third Circuit affirmed the district court’s decision. 

Marcal Paper Mills, Inc. (Marcal, Inc.) filed for protection under Chapter 11 in November 2006. From and after its petition date through May 30, 2008, Marcal, Inc., continued to employ unionized workers and make pension-related contributions for such workers as required under the terms of applicable collective-bargaining agreements. As of May 30, 2008, Marcal, Inc.’s assets were sold, Marcal, Inc., ceased to employ such workers, and Marcal, Inc.’s obligation to make pension-related contributions ended. The purchaser of Marcal, Inc.’s assets––Marcal Paper Mills, LLC (Marcal, LLC)––did not employ the unionized workers and did not assume liability for any pension-related contributions from and after the date of the purchase of Marcal, Inc.’s assets. Marcal, LLC, did, however, assume liability for Marcal, Inc.’s pre-closing related pension obligations.

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