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
2
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.
3