Post-Confirmation, Pre-Effective Date Administrative Expense Claims are Subject to Bar Date

Kayla Nieves

St. John’s University School of Law

American Bankruptcy Institute Law Review Staff

In Ellis v. Westinghouse Electric Co., LLC, the United States Court of Appeals for the Third Circuit held that sections 503 and 1141 of Title 11 of the United States Code (the “Bankruptcy Code”) authorize bankruptcy courts to set deadlines (i.e., bar dates) for administrative expense claims, including claims arising after confirmation of a plan but before its effective date.[1] In March 2017, Westinghouse Electric Co., LLC (“Westinghouse”), a global nuclear power business, filed a Chapter 11 petition for relief under the Bankruptcy Code in the Southern District of New York.[2] Thereafter, the New York Bankruptcy Court confirmed Westinghouse’s Plan[3] and Westinghouse gave notice to creditors that the Plan became effective on August 1, 2018 and that the deadline for filing administrative expense claims against Westinghouse was  August 31, 2018.[4] Timothy Ellis (“Ellis”), a former employee who  was terminated approximately two months prior to confirmation of the Plan, filed a claim alleging age discrimination with  the federal Equal Employment Opportunity Commission in July 2018, after confirmation of the Plan.[5] In October 2018, Ellis filed his administrative expense claim in the Western District of Pennsylvania District Court against Westinghouse.[6] Westinghouse filed a motion for summary judgment, arguing that because Ellis’s administrative expense claim was not timely filed by the bar date it was discharged by the Plan and the order confirming it.[7] The District Court denied Westinghouse’s motion and granted summary judgment in favor of Ellis.[8] According to the District Court, the Bankruptcy Code does not authorize the use of a bar date to discharge post-confirmation administrative expense claims and held that section 1141(d) of the Bankruptcy Code prohibits the discharge of post-confirmation claims.[9] Westinghouse moved for interlocutory appeal which the District Court certified because of the novel and complex legal questions involved.[10]

The United States Court of Appeals explained that Ellis’ claim must be an “administrative expense claim,” as defined by the Plan, in order for the bar date of administrative claims to be invoked.[11] The Plan and section 503(b) of the Bankruptcy Code provides that “[a]fter notice and a hearing, there shall be allowed administrative expenses, … including the actual, necessary costs and expenses of preserving the estate.”[12] According to the Third Circuit,  post-petition employment discrimination claims are “actual and necessary” administration expenses, because such claims are a “cost[] ordinarily incident to operation of a business.”[13] Further, according to the Third Circuit, the conclusion that such claims are administrative expenses advances the policy goal of section 503(b)(1)(A), which is intended to incentivize  employees to continue working for a debtor.[14] Finding that the claims were administrative expense claims, the court concluded that Section 503 gives bankruptcy courts the power to set and enforce bar dates and section 1141(d) allows the Plan and confirmation order to govern the discharge of claims with a few exceptions.[15] Valid post confirmation claims are also dischargeable under section 1141(d).[16] If creditors file valid claims by the bar date, they will receive priority treatment and get paid in full under the Plan.[17] If creditors file their claims late, they will face discharge.[18]

According to the Third Circuit Court of Appeals, an employment discrimination claim is an “actual and necessary” administrative expense under section 503(b)(1)(A).[19] Moreover, a bankruptcy court may establish a deadline for filing such administrative expense claims, including post-confirmation administrative expense claims.[20]  If such claims are not timely filed, they may be discharged.[21]