Steve Ray Frost and Eloise Marie Frost

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INFORMATION

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U5. Bankruptcy Court
District of Idaho

Filed: April 9, 2004

at 1:00 p.m.

By: JC of

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF IDAHO

IN RE

STEVE RAY FROST and Case No. 03-22010
ELOISE MARIE FROST,

Debtors. MEMORANDUM OF DECISION

ad

This matter comes before the Court on the objection of chapter 13 Debtors
Steve and Eloise Frost (“Debtors”) to the proof of claim filed by the State Insurance
Fund of the State of Idaho (“Creditor”). See Doc. No. 12. The subject proof of
claim, Claim No. 4, asserts a $2,750.00 unsecured priority claim. Creditor
describes the basis of the claim as “workers compensation premium” and asserts
that priority is claimed under § 507(a)(8). le

Debtors’ objection to claim filed February 17, 2004, argues that the claim
should be disallowed priority status and allowed only as a general unsecured claim.

Debtors argue that “[t]he basis of [Creditor’s] assertion of priority is apparently the

' Section 507(a)(8) allows priority treatment for unsecured claims of governmental
units for taxes of the sort identified in § 507(a)(8)(A) through (E), customs duties under
§ 507(a)(8)(F), or penalties related to such claims, if in compensation for actual pecuniary
loss, under § 507(a)(8)(G).

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ath Circuit Court decision that premiums are employee benefit plan contributions.”
Doc, No. 12 at 1. Debtors then argue that § 507(a)(4) only allows priority status to
allowed unsecured claims for contributions to employec benefit plans to the exlent
such claims “aris[e] from services rendered within 180 days before the date of the
filing of the petition or the date of cessation of the debtor’s business, whichever
occurs first[.]” See § 507(a)(4)(A). They argue that, here, the claims well antedate
180 days of the petition.

Debtors set a hearing on their objection for March 9, 2004, Debtors
appeared at such hearing and the chapter 13 Trustee also appeared. No response
to the objection was filed by Creditor nor did the Creditor appear at hearing. The
Court look the matter under advisement and requested Debtors to submit legal
authorities within 15 days. See Doc. No. 17 (minute entry). No briefs or other
submissions were made,

DISCUSSION AND DISPOSITION

A. Adequacy of service of the objection

Debtors’ objection to claim was served on Creditor at the address used on
the proof of claim and was directed to the attention of the “collection supervisor”
who had signed the proof of claim. This service was inadequate. See /n re Egan,
02.4 1.B.C.R. 177, 178 (Bankr. D. Idaho 2002) (establishing that, because an
objection to claim initiates a contested matter, parties must comply with the service
provisions of Bankruptcy Rule 7004, incorporated by Bankruptcy Rule 9014.)

The precise nature of Creditor is not established by either the proof of claim

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or the objection.” If Creditor is a governmental unit for purposes of this contested
matter, service was improper.” Under Bankruptcy Rule 7004(b)(6), service on a
state Or Municipal corporation or other governmental organization is made by lirst
class mail, addressed “to the person or office upon whom process is prescribed to
be served by the law of the state in which service is made when an action is
brought against such a defendant in the courts of general jurisdiction of that state,
or in the absence of the designation of any such person or office by state law, then
to the chief executive officer thereof.”

The service here has not been shown to comply with the provisions of Rule
7004(b).

B. Objection under § 507(a)(4)

As noted, Debtors’ objection assumes that Creditor asserts priority treatment

for its claim on the theory that workers’ compensation premiums are employee

* Idaho case law indicates that the State Insurance Fund is “an agency of the state
created for the purpose of carrying on and effectuating a proprietary function as
distinguished from a governmental function. It serves a ‘public purpose’ but not a
‘governmental purpose.” Wiffiams v. Musgrove, 370 P.2d 778 (Idaho 1962); see also Kelso
v. Lance, 3 P.3d 51 (Idaho 2000): Selkirk Seed Co. v. Famey, 996 P.2d 798 (Idaho 2000).
Therefore, “the SIF is treated as a state agency tor some purposes but not for others.” Kelso,
3 P.3d at 54,

* It is certainly arguable that Creditor is a governmental unit for the purposes of this
proceeding. It asserted a claim under § 507(a)(8), which is limited to governmental units.
And “governmental unit” is defined by § 101(27) as including a State and an “apency or
instrumentality of .. . a State[.]”

* If Creditor is considered a corporation for purposes of this proceeding, the service
of the objection is still inadequate. Under Rule 7004{b)(3), service on a domestic: or foreign
corporation is effected by first class mail “to the attention of an officer, a managing or
Seneral agent, or to any other agent authorized by appointment or by law to receive service
of process[.]” See fean, 02.4 .B.C_R, at 178.

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benefit plan contributions within reach of § 507(a)(4). Dac. No. 12 al 2.°

Due to Debtors’ failure to provide the requested briefing, the Court is also
required to make some assumptions. It presumes that Debtors (and, perhaps,
Creditor} refer to the decision in Employers insurance of Wausau v. Plaid Fantries,
Inc., 10 F.3d 605 (9th Cir. 1993). That decision held that the legislative history and
public policy behind § 507(a)(4) compel the conclusion that premiums owed an
insurer under a workers’ compensation policy or plan should be entitled to the
same protection as other benefit plans provided to employees. fd. at 607; accord
Tanzi v. Comerica Bank-Calitornia (In re Tanzi}, 297 B.R. 607, 613 n.7 (9th Cir.
BAP 2003).°

In a nutshell, Debtors argue that, even if such premiums are entitled to
priority treatment, the premiums at issue herein fall outside the reach of
§ 507(aX4\(A) since the documentation attached to the claim would appear to
suggest the liabilities arose more than 180 days before the filing of the bankruptcy

or the cessation of business.’ While it is true that the documents attached to the

5 The face of the proof of claim does not make that assertion but, instead, clairas
priority under § 507(a)(8). However, Creditor attached to its proof of claim a photacopy of
a page from a treatise or legal newsletter discussing the possible treatment of workers’
compensation premiums as contributions lo employee benefit plans. That discussion refers
generally to a Delaware decision, by name only, and to an unnamed Ninth Circuit
decision, but contained no citations.

* Even brief legal research will disclose that this conclusion is not universally held.
However, this Court is governed by Ninth Circuit decisional law.

7 While Flard Pantries did nat specifically address this question, Wausau’s priority

claim “represent[ed] that portion of the [total Wausau claim] which was incurred within
(cantinued...}

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claim might be so read, the sparse record" leaves the Court less than comfortable in
making determinative factual findings. More importantly, Credilor never clearly
asserted a priority status under § 507(a)(4). Thus, the Court concludes Debtors’
objection — on the grounds alleged — should be denied. However, this denial will
be without prejudice to Debtors’ renewal of their objection in the event Creditor
files or asserts a claim under § 507 (a)(4).

C. Objection under§ 507(a)(8)

Creditor’s claim was, as noted, asserted under § 507(a)(8) which provides
priority status to cerlain tax obligations owed to governmental units. Debtors’
objection did not assail Creditor’s claim on the basis that it did not qualify under
§ 507(a)(8). Had Debtors done so, it appears that the objection might be well
taken because nothing in the proof of claim or its attachments clearly establishes
that the obligation represents a tax that would fall within any subdivision of
§ 507(a)(8}). Nevertheless, Debtors failed to properly serve their objection, and
they failed to raise an objection under § 507(a)(8), Therefore, no relief can be
granted at this time.

CONCLUSION
Based on the foregoing, Debtors’ objection to Creditor’s claim will be

denied. That denial will be without prejudice to further proceedings. Because the

7(...continued)
180 days of the bankruptcy filing.” 10 3d at 606.

* Since Creditor did not appear at hearing, Debtors did not present any evidence on
their objection.

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objection to claim must be denied, Debtors’ plan cannot be cantirmed; there is, at
least for the moment, a priority unsecured claim not appropriately treated under
that plan. Confirmation of Debtors’ plan will therefore be denied. That denial will
also he without prejudice to renewal once the clair issue has been resolved or an
amended plan has been filed.

An appropriate order will be entered.

Dated this 9th day of April, 2004.

TERRY L. MYERS
UNITED STATES BANKRUPTCY JUDGE

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CERMFICATE Of SERVICE

|, the undersigned, hereby cerlify that | served by the method indicated
below, a true copy of the document to which this certificate is attached, to the
following named person(s) at the following address(es), on the date shown below:

DATED: April 9, 2004
Case No. 03-22010 (Steve and Eloise Frost)

Office of the U.S. Trustee
304 N. 8th Street, Room 347
Boise, ID 83702
jeff. s howe@usdoj. gov
gary mcclendon@usdo]. gov
O U.S. Mail O facsimile v¥ Email

Michael B. McFarland
Attorney at Law
421 Coeur d’Alene Avenue, Suite 1L
Coeur d’Alene, Idaho 83814
mbm@icehouse.net
(1 U.S. Mail C Facsimile / Email

C. Barry Zimmerman
P.O. Box 1240
Coeur d‘Alene, ID 83816
charry@my180.net
O U.S. Mail O Facsimile vw” Email

state Insurance Fund
1215 W. State St.
Baise, ID 83720
# U.S. Mail O facsimile O Email

DB. Cemdltcn

Ann B. Canderan
udicial Assistant to Judge Myers

Note to Email service: A POF version of the above decision/order was uleetranically transmitted to the
parties indicated above. Email survice is provided as a cotrtesy only upon requeslofa party. fo review an
electronic image of the ariginal of this document, ur ta subscribe for email service of future
decisionsfarders from the Bankruptcy Judge, please access the Court's liternet wel site,

ww id uscourts poy,

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