In Re Palau Corporation, Debtor. National Labor Relations Board v. Edward M. Walsh, Trustee for Palau Corporation, Debtor

In this case we must decide whether an unlawfully discharged employee’s claim for backpay is entitled to administrative priority when his claim accrued after the former employer filed a petition in bankruptcy. For the reasons which follow we conclude that the claim is not entitled to priority as an administrative expense of the bankruptcy estate.

FACTS AND PRIOR PROCEEDINGS

On November 3, 1980, the Palau Corporation (“Palau”) laid off two of its employees, Ralph Montoya (“Montoya”) and Michael Cook (“Cook”). Ten days later Montoya filed charges with the National Labor Relations Board (“NLRB”), alleging that Palau had engaged in unfair labor practices. Palau filed a petition in bankruptcy the following month (December 10, 1980), seeking reorganization and protection from creditors under Chapter 11 of the Bankruptcy Code.

On January 30, 1981, the Regional Director for the NLRB issued a complaint against Palau based on Montoya’s charges. Palau responded to the complaint and, on August 6,1981, a hearing with oral argument was held before an administrative law judge (“ALJ”). The ALJ issued his decision on January 28, 1982, finding that Palau’s act of laying off Montoya and Cook…