Lasky v. Phones for All, Inc.

UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT

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No. 01-10758
Summary Calendar
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In The Matter Of: PHONES FOR ALL, INC.;
PREFERRED CARRIER SERVICES, INC.;
PREFERRED CARRIER SERVICES VIRGINIA, INC.,

Debtors.
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ISSAC LASKY,

Appellant,

versus

PHONES FOR ALL, INC.; PREFERRED CARRIER SERVICES, INC.;
PREFERRED CARRIER SERVICES VIRGINIA, INC.,

Appellees.

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Appeal from the United States District Court
for the Northern District of Texas
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April 30, 2002

Before JONES, SMITH, and EMILIO M. GARZA, Circuit Judges.

EDITH H. JONES, Circuit Judge:

The issue in this case is whether Issac Lasky is entitled

to an administrative priority claim for severance pay from the

debtor when he executed an employment contract containing the

severance pay clause about five months before the debtor filed for

Chapter 11 bankruptcy relief, but was terminated three weeks after
the filing. This court has not squarely faced this type of issue

before. For the following reasons, we affirm the judgments denying

administrative priority to the severance claim.

Lasky argues that his contractual right survived the

bankruptcy filing to become an administrative claim. He relies on

cases from the Second Circuit, which differ in result and reasoning

from most other circuits. See In re: Amarex, 853 F.2d 1526, 1531

n.5 (10th Cir. 1988), discussing circuit split.

The bankruptcy court held, however, that Lasky cannot

prevail for three reasons. First, while the general wage priority

section of the Bankruptcy Code clearly specifies and limits

priority treatment for severance payments, see 11 U.S.C. §

507(a)(3)(A), the provision according first-priority status to

administrative claims does not. See 11 U.S.C. § 507(a)(1)

(incorporating 503(b)(1)(A)). Congress’s omission of severance pay

from administrative priority status must therefore have been

deliberate. Second, Lasky “earned” his severance pay when he

entered into the contract, rather than as compensation for past

services rendered. As a result, even the Second Circuit cases

would not accord his claim priority status. Third, Lasky’s claim

did not represent services that conferred a benefit on the estate

as required to garner administrative priority status. See NL

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Indus., Inc. v. GHR Energy Corp., 940 F.2d 957, 966 (5th Cir.

1991).1 The district court affirmed.

We essentially agree with the bankruptcy court’s

reasoning. See In re: Phones for All, Inc., 249 B.R. 426 (Bktcy.

N.D. Tex. 2000). We understand that court’s statutory

interpretation to mean that a prepetition severance agreement is

not entitled to post-petition administrative priority status. As

the Tenth Circuit explained, to attain such status, a severance

claim “must have arisen from a transaction with the debtor in

possession” and must then confer a benefit on the debtor’s estate.

In re: Commercial Financial Services, Inc., 246 F.3d 1291, 1294

(10th Cir. 2001). This reading of the statutory provisions makes

clear the claimants’ burden to reconfirm or renegotiate post-

petition any severance packages they may have if they continue to

work for the debtor.

Because, as the bankruptcy court demonstrated, no plain

reading of the Bankruptcy Code supports treating Lasky’s

prepetition severance provision as an administrative expense, the

judgments of the bankruptcy and district courts are AFFIRMED.

1
The bankruptcy court alternatively held that if Lasky’s claim were
entitled to priority under §§ 503(b) and 507(a)(1), the court would prorate the
amount of severance over the 3-week period Lasky worked for the debtor post-
petition.

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