On August 30, 2021, the United States Court of Appeals for the Third Circuit (the Third Circuit) issued a precedential opinion in Timothy Ellis v. Westinghouse Electric Co., LLC answering, for the first time, whether bankruptcy courts can set and enforce bar dates for administrative expense claims arising after a Chapter 11 plan for reorganization has been confirmed by the bankruptcy court, but before the confirmed plan’s effective date takes place under Title 11 of the United States Code (the Bankruptcy Code). Judge Thomas L. Ambro, writing for the Third Circuit, held that “sections 503 and 1141 of the Bankruptcy Code authorize bankruptcy courts to set and enforce bar dates for administrative expense claims, including claims arising after confirmation of a plan but before its effective date.” Slip Op., at 3.
The salient facts are these: In March 2017 (the Petition Date), Westinghouse Electric Company, LLC (Westinghouse) filed for bankruptcy in the United States Bankruptcy Court for the Southern District of New York (the Bankruptcy Court) under Chapter 11 of the Bankruptcy Code. Id., at 4. On March 28, 2018 (Confirmation), the Bankruptcy Court confirmed Westinghouse’s Chapter 11 plan for reorganization (the Plan). Id., at 6. Among other things, the Plan contemplated a bar date for administrative expense claims on “the first Business Day that is 30 days following the [Plan’s effective date],” id., at 5, and a discharge of those claims not filed by the applicable bar date. The date upon which the Plan was to become effective was delayed pending the closing of a certain investment transaction, which required governmental approval. Id., at 6. Ultimately, the Plan became effective on August 1, 2018 (the Effective Date), which would make August 31, 2018 the “Administrative Claims Bar Date.” Id., at 6–7.
On May 31, 2018, during that period of time between Confirmation and the Effective Date, Westinghouse terminated the employment of Timothy Ellis because Ellis’s department was “being restructured.” Id., at 7. Ellis, 67 years old, believed his termination was actually due to his age and filed a claim against Westinghouse in July 2018 with the federal Equal Employment Opportunity Commission. Id. Thereafter, in October 2018—after the August 31, 2018 Administrative Claims Bar Date—Ellis filed suit against Westinghouse in the United States District Court for the Western District of Pennsylvania (the District Court), which suit was stayed pending exhaustion of state administrative remedies. Id., at 8. The suit resumed in July 2019, at which time Westinghouse filed a motion for summary judgment “arguing that Ellis’s claim, as an administrative expense claim not timely filed by the Administrative Claims Bar Date, was discharged by the Plan and the order confirming it.” Id. The District Court denied Westinghouse’s motion and granted summary judgment in favor of Ellis, determining his claim was not discharged because section 503 of the Bankruptcy Code “does not authorize the use of a bar date to discharge post-confirmation administrative expense claims” and section 1141(d) of the Bankruptcy Code “prohibits the discharge of post-confirmation claims.” Id. Importantly, Ellis never took any actions in the Bankruptcy Court with respect to his age discrimination claim against Westinghouse. Id.
The case was delivered to the Third Circuit’s doorstep by the District Court on a certification of interlocutory appeal on the following legal questions:
Where a plaintiff’s claim under the Age Discrimination in Employment Act (and parallel provisions of state law) arises after the confirmation of an approved bankruptcy plan of reorganization, but prior to the effective date of the plan and the vesting of the bankruptcy estate as set forth and defined in such plan by order of the bankruptcy court: (1) is the plaintiff’s claim barred by the provisions of 11 U.S.C. § 503 if the plaintiff did not file such employment discrimination claim as a claim for an administrative expense prior to the post- confirmation administrative claim bar date under the plan; and/or (2) is such employment discrimination claim discharged by the provisions of 11 U.S.C. § 1141, and/or under the principles of res judicata, if such claim was not filed in the bankruptcy court prior to the post-confirmation effective and discharge dates set out in the plan?
Id., at 8–9.
The Third Circuit’s analysis of the above interlocutory question began with determining whether Ellis’s claim was an administrative expense claim as that term is defined under section 503(b) of the Bankruptcy Code. Id., at 12. An administrative expense claim is one that provides for “actual, necessary costs and expenses of preserving the estate.” Id. (quoting 11 U.S.C. § 503(b)). After reviewing the relevant caselaw, the Third Circuit determined that an employment discrimination claim is an actual and necessary cost and expense to preserve the bankruptcy estate because “[t]reating such claims as administrative expenses furthers the policy goals of § 503(b)(1)(A)—providing incentives for employees to continue working for a bankruptcy company,” and “[w]ithout the assurances that any valid employment discrimination claim would be paid in full, workers may leave based on fear that their rights will not be fully protected.” Id., at 14. In reaching this conclusion, the Third Circuit explained that a claim against the bankruptcy estate “is either an administrative expense claim or it is not; it cannot be a chameleon,” id., at 15, and that the United States Supreme Court had previously concluded that a tort claim was an administrative expense claim. Id., at 12 (citing Reading Company v. Brown, 391 U.S. 471 (1968)).
Having determined that employment discrimination claims are administrative expense claims, the court turned to whether a bankruptcy court could set and enforce bar dates for administrative expense claims, which it answered in the affirmative, citing section 503 of the Bankruptcy Code as the source of such powers. Id., at 15, 19. The Third Circuit next considered whether “an administrative expense claim that arose between the plan’s confirmation and effective date is also bound by the bar date and subject to discharge.” Id., at 19. Assessing this issue, the Third Circuit relied on the text of section 503(a), which makes no distinction regarding pre- and post-confirmation administrative expense claims. Rather, the court opined, “the only temporal limit is with the existence of the estate, not the date of plan confirmation,” and that, therefore, “[t]he Bankruptcy Code thus ties the viability of administrative expense claims (and, by extension, the coverage of a bar date for those claims) to the existence of the estate, not confirmation of the plan.” Id., at 19–20. Critically, a Chapter 11 plan “can extend the life of the estate to a later date [than confirmation] such as the effective date.” Id., at 20. In the case at bar, of course, the Plan was confirmed on March 28, 2018, but the Effective Date was August 1, 2018, with an Administrative Claims Bar Date of August 31, 2018. “Where the gap between the confirmation date and effective date is significant, concerns about undisclosed liabilities are heightened, and the bar date becomes even more important.” Id.
The Third Circuit then considered whether section 1141(d)(1) of the Bankruptcy Code prohibits the discharge of post-confirmation claims. Id., at 21. As the court stated earlier in the opinion, “the specter of discharge is integral to a bar date” because “[w]ithout it, bar dates would have no teeth.” Id. Section 1141(d)(1) of the Bankruptcy Code provides:
Except as otherwise provided in this subsection, in the plan, or in the order confirming the plan, the confirmation of a plan—
(A) discharges the debtor from any debt that arose before the date of such confirmation, and any debt of a kind specified in section 502(g), 502(h), or 502(i) of this title, whether or not—
(i) a proof of the claim based on such debt is filed or deemed filed under section 501 of this title;
(ii) such claim is allowed under section 502 of this title; or
(iii) the holder of such claim has accepted the plan; and
(B) terminates all rights and interests of equity security holders and general partners provided for by the plan.
11 U.S.C. § 1141(d)(1). The Third Circuit, relying on the text of this section, determined that section 1141(d)(1) “creates a default rule for discharging pre-confirmation debts, meaning it applies only when the plan and confirmation order are silent on the issue.” Slip Op., at 22. “Here,” the court continued, “the Plan provided for the discharge of post-confirmation claims not timely filed by the Administrative Claims Bar Date. This overrides the default rule in § 1141(d)(1).” Id.
Based on the foregoing, the Third Circuit divined at bottom that Ellis’s employment discrimination claim which arose after Confirmation but before the Effective Date was, indeed, an administrative expense claim; however, because Ellis failed to file a claim in the Bankruptcy Court before the Administrative Claims Bar Date, his claim is discharged by Westinghouse’s Plan, unless Ellis can convince the Bankruptcy Court to accept late filing of his claim. Id., at 29–30. Finally, the Third Circuit qualified its decision so that it is “limited to the enforceability of a bar date for administrative expense claims and does not otherwise interfere with Ellis’s rights to challenge a confirmed plan.” Id., at 25.
Author Zachary Schnapp is an associate in the bankruptcy and restructuring department at Klehr Harrison.