Ky. Employees Retirement Sys. v. Seven Counties Servs., Inc.

Case Type:
Case Status:
Reversed and Remanded
16-5569/5644 (6th Circuit, Jul 20,2020) Not Published
Section 959(b) is not limited to compliance with health and safety laws and Debtor was required, pursuant to 28 U.S.C. 959(b), to make statutorily mandated post-petition contributions to the Kentucky Employee Retirement System (a state employee pension plan). Judge McKeague concurred, but dissented, in part, on the basis that the Kentucky Supreme Court's answer to the certified question strengthened his prior dissent on the issue of chapter 11 eligibility.
Procedural context:
Bankruptcy Court ruled that Debtor was not a government unit ineligible for chapter 11 relief and that the relationship between Debtor and KERS was contractual, not statutory, and that, therefore, Debtor was not required to make post-petition contributions to KERS pursuant to 959(b). KERS appealed to the District Court and Debtor cross-appealed to preserve its argument that, even if relationship between the parties was statutory, Debtor was still not required to make post-petition contributions to KERS. The District Court affirmed and KERS appealed to the 6th Circuit and Debtor filed a cross-appeal. The 6th Circuit affirmed (with a dissent) the lower courts' rulings on chapter 11 eligibility, but certified the question to the KY Supreme Court as to whether the relationship between the Debtor and KERS was statutory or contractual. Prior to an answer being provided by the KY Supreme Court, KERS requested en-banc review and that request was held in abeyance. The KY Supreme Court answered that the relationship was statutory in nature, leading to the instant decision re: application of 959(b).
Seven County Services("Debtor") is a non-profit provider of mental health services. Kentucky Employee Retirement Systems ("KERS") is a pension plan for state employees. Debtor has participated in KERS since 1979 when the Governor issued an executive order designating it as a "participating department." Debtor's participation in KERS became increasingly burdensome as KERS' funding decreased - the employer contribution rate was 24% in April 2013 and increased to 39% by July 2014. Furthermore, unlike a private multiemployer pension, there was no obvious mechanism to cease participating in KERS. Debtor filed bankruptcy in April 2014 and immediately moved to reject its participation in KERS pursuant to 365 of the Bankruptcy Code. KERS argued (i) that the Debtor was ineligible for chapter 11 relief; and (ii) Debtor's participation in KERS was based on statute, not contract, and could not be rejected.
Cole, McKeague, Stranche

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