Catholic Sch. Emps. Pension Trust v. Abreu, BAP NO. PR 18-011

599 B.R. 634

CATHOLIC SCHOOL EMPLOYEES PENSION TRUST, a/k/a Fideicomiso Plan de Pension Para Empleados de Escuelas Catolicas, a/k/a Catholic Schools of the Archdioceses of San Juan Pension Plan, Debtor.

Catholic School Employees Pension Trust, Appellant,

v.Francisco A. Abreu, Yali Acevedo, and Edda D. González-Vázquez, Appellees.

BAP NO. PR 18-011

Bankruptcy Case No. 18-00108-ESL

United States Bankruptcy Appellate Panel of the First Circuit.

April 18, 2019

Javier Vilariño, Esq., on brief for Appellant.

Ramón Dapena, Esq., German Brau, Esq., Francisco Amundaray, Esq., and Carlos F. López, Esq., on brief for Appellees.

Before Feeney, Hoffman, and Cary, United States Bankruptcy Appellate Panel Judges.

Feeney, Chief U.S. Bankruptcy Appellate Panel Judge.

Catholic School Employees Pension Trust (the "Pension Trust" or the "Trust") appeals from the bankruptcy court's Opinion and Order (the "Dismissal Order"), dated March 13, 2018, dismissing the Pension Trust's chapter 11 case. In dismissing the case, the bankruptcy court ruled that the Pension Trust was not a "person" eligible to be a debtor under 11 U.S.C. § 109 because it was not a "business trust" under § 101(9)(A)(v).¹ For the reasons set forth below, we AFFIRM the Dismissal Order.

INTRODUCTION

The Pension Trust administered and managed the Catholic Schools of the Archdiocese of San Juan Pension Plan (the "Pension Plan" or "Plan") which was terminated in June 2016.² Prior to the commencement of the Pension Trust's bankruptcy case, hundreds of Pension Plan participants (identified in the Pension Plan as employees) had commenced actions against The Holy Catholic Apostolic Roman Church, the Archdiocese of San Juan, the "Superintendence" [sic] of Catholic Schools of the Archdiocese of San Juan, the Pension Plan, and various other entities and individuals, including the current president of the board of trustees of the ²⁸ Pension Trust, Dr. Ramón A. Guzmán Rivera ("Dr. Guzmán"), in courts of the Commonwealth of Puerto Rico and the U.S. District Court for the District of Puerto Rico to recover unpaid pension benefits, as well as other forms of relief. Seeking a breathing spell from this litigation, the Pension Trust filed a chapter 11 petition on January 11, 2018.³

On February 6 and 7, 2018, motions to dismiss the chapter 11 case were filed by Yali Acevedo, on her own and on behalf of 180 plaintiffs in a case before the Court of First Instance, San Juan; Francisco Abreu, on his own and on behalf of six other plaintiffs in a case before the Court of First Instance, Aguadilla; and Edda D. González-Vázquez, a plaintiff in a case before the U.S. District Court for the District of Puerto Rico (collectively, the "Appellees"). The Appellees, who are participants under the Pension Plan, asserted that the Pension Trust was not a "person" eligible for bankruptcy relief because it was not a "business trust" under the Bankruptcy Code.⁴ They alleged that the Pension Trust did not engage in "income generating activities" or "business activities" and, therefore, was not a business trust eligible for relief under the Bankruptcy Code. The Pension Trust opposed the motions to dismiss, claiming, among other things, that it was a business trust because it had attributes of a corporation and engaged in business activities. According to the Pension Trust, the court needed to consider the "totality of the circumstances," including the terms of the Pension Trust document, the business activities in which the Trust engaged before the Pension Plan was terminated, and the economic landscape that led to its financial decline. The Pension Trust likened its post-termination activities to those an insolvent corporation would undertake in liquidating its assets in a chapter 11 bankruptcy case and stated that the bankruptcy case was commenced "specifically to effectuate the orderly liquidation of the business trust." (emphasis in original).

The bankruptcy court scheduled an evidentiary hearing on the two motions to dismiss and, in a pre-hearing order, identified the "key legal issue" in determining the Pension Trust's eligibility as "whether the Pension Trust is a business trust." After the evidentiary hearing, at which the only witness was Dr. Guzmán, the president of the Pension Trust's board of trustees, the bankruptcy court dictated into the record its findings and rulings and granted the motions to dismiss, indicating that it would issue a written decision at a later date. That written decision was the Dismissal Order in which the court determined that the Pension Trust was not a business trust and, therefore, was ineligible to be a debtor. Noting that the Bankruptcy Code does not define the term "business trust" and that no uniform standard has developed in the case law in the First Circuit and elsewhere, the bankruptcy court determined the relevant factors for evaluating whether an entity is a business trust are: (1) "whether the trust was created for the purpose of carrying [on] a business, as opposed to the preservation of the res "; (2) "whether the trust has the attributes of a corporation"; (3) "whether the trust engages in business-like activities"; and (4) "whether the trust has a profit motive." See In re Catholic Sch. Emps. Pension Tr., 584 B.R. 82, 87 (Bankr. D.P.R. 2018) (citations omitted). The bankruptcy court did not engage in a detailed analysis of each of these factors, but ruled that the Pension Trust was not a business trust.

BACKGROUND ⁵

I. Pre-Bankruptcy Events

A. The Establishment of the Pension Trust and the Pension Plan

The Pension Trust was established on November 26, 1979 by a Deed of Trust. The Pension Plan was attached to, and incorporated into, the Deed of Trust. The Settlor of the Pension Trust was the Superintendent of the Catholic Schools of the Archdiocese of San Juan (the "Settlor" or the "Superintendent"). The Settlor also was denominated in the Pension Plan as its "Sponsor." Pursuant to the terms of the Pension Plan, the Settlor was responsible for the appointment of a "Retirement Committee" (hereinafter sometimes the "committee") of at least seven members who would be "under the control and direction of the Settlor and be accountable to it [sic]." Pursuant to the Pension Plan, the Settlor also was responsible for the appointment of trustees to take possession of Plan property.

The Deed of Trust incorporates by reference defined terms in the Pension Plan. The Pension Plan defines the term "Participant" as "any employee or their beneficiaries of a participating employer who has acquired or may acquire rights in the plan," and the term "Beneficiaries" as "the person or persons, natural or juridical [sic] designated to receive any benefits payable pursuant [to] this document upon the death of the participant," as well as "each and every one of the beneficiaries or heirs after the death of the participants."⁶ The term "Participating Employer" is defined as follows:

( [i] ) the Office of the Superintendent of Catholic Schools of the Archdiocese of San Juan and any school that is under the supervision of the Superintendent and chooses to participate in the plan, (ii) any successor to the property of any of them, (iii) any other Catholic school under the supervision of the Superintendence [sic] of their respective diocese or superintendence [sic] of Catholic schools that assumes in writing the obligation of this plan, and (iv) any agency and/or branch office of the Catholic Church of Puerto Rico, but in each case subject to the approval of the plan sponsor or their successor [sic].

The Pension Plan provides that it was created by the Superintendent "for the exclusive benefit of the employees of the participating employers and/or their beneficiaries," and that "[u]nder no circumstances shall any trust property be used or any contribution made by the employer[s] under the terms of this plan for purposes other than the exclusive benefit of the employees and their beneficiaries ...."⁷ It also provides that it applies "to current and future employees of participating employers."

The Deed of Trust provides that "the Trust shall consist of such funds as shall from time to time be deposited with the Trustee by the Settlor and its employees in accordance with the term of the Plan ...." The Pension Plan in turn provides that: "The custody and control of all the assets constituting part of the fund shall be held by the trustee[s] and neither the Settlor nor any participant shall have any property right on it [sic], except that participants are entitled to receive those payments and distributions that are set forth herein." Thus, a board of trustees (hereinafter sometimes the "trustees" or the "board") administers the Trust and oversees its compliance with the terms and conditions of the Deed of Trust and the (now terminated) Pension Plan. The Deed of Trust requires the trustees to discharge their duties with respect to both the Trust and the Pension Plan "solely in the interest of the participants and their beneficiar[ies]."

B. The March 2016 Termination of the Pension Plan

Article 18 of the Pension Plan contains provisions relating to its termination and the liquidation of assets of the Pension Trust. It provides:

A. The Settlor reserves the right to terminate this plan in its entirety at any time, for any reason, or no reason at all subject to the previous approval of the Secretary of the Treasury, and/or the Pension Benefit Guarantee Corporation, as well as the majority of participating employers.

B. This termination shall be effective if the committee and the trustee[s] receive a termination permit from the Secretary of the Treasury. In such case, each participant shall take possession of all rights, title and interests of accrued benefits acquired under the plan as provided in Section D of this article.

C. The trustee shall execute each and every one of the legal documents required to achieve the termination of the trust as provided herein.

D. When the termination of the plan has been

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