Wheeling-Pittsburgh Steel Corp. v. United Steelworkers of America, AFL-CIO-CLC.

• Decision Date: 28 May 1986
• Docket Number: No. 85-3489,AFL-CIO-CL,WHEELING-PITTSBURGH,A,85-3489
• Citation: 791 F.2d 1074
• Parties: 122 L.R.R.M. (BNA) 2425, 89 A.L.R.Fed. 263, 54 USLW 2614, 104 Lab.Cas. P 11,828, 14 Collier Bankr.Cas.2d 955, 14 Bankr.Ct.Dec. 795, Bankr. L. Rep. P 71,170, 7 Employee Benefits Ca 1529 STEEL CORPORATION, Debtor-in-Possession v. UNITED STEELWORKERS OF AMERICA,ppellant.
• Court: U.S. Court of Appeals — Third Circuit

Page 1074

791 F.2d 1074

122 L.R.R.M. (BNA) 2425, 89 A.L.R.Fed.

263, 54 USLW 2614,

104 Lab.Cas. P 11,828, 14 Collier Bankr.Cas.2d 955,

14 Bankr.Ct.Dec. 795, Bankr. L. Rep. P 71,170,

7 Employee Benefits Ca 1529

WHEELING-PITTSBURGH STEEL CORPORATION, Debtor-in-Possession v. UNITED STEELWORKERS OF AMERICA, AFL-CIO-CLC, Appellant.

No. 85-3489.

United States Court of Appeals,

Third Circuit.

Argued Feb. 19, 1986.

Decided May 28, 1986.

Bernard Kleiman, Carl B. Frankel, Paul Whitehead, United Steelworkers of America, Pittsburgh, Pa., Michael H. Gottesman (argued), Robert M. Weinberg, Gary L. Sasso, Bredhoff & Kaiser, Washington, D.C., Claude Montgomery, Booth, Marcus & Pierce, New York City, for appellant, United Steelworkers of America, AFL-CIO-CLC.

John J. McLean, Jr. (argued), M. Bruce McCullough, Buchanan Ingersoll, P.C., Pittsburgh, Pa., Ronald Orr (argued), Gibson, Dunn & Crutcher, Los Angeles, Cal., for appellee, Wheeling-Pittsburgh Steel Corp.

Nathan B. Feinstein, Lawrence G. McMichael, Dilworth, Paxson, Kalish & Kauffman, Philadelphia, Pa., Joel M. Walker, Pollard & Walker, Pittsburgh, Pa., Theodore Gewertz, Denis F. Cronin, Warren R. Stern (argued), Thomas Moers Mayer, Andrew C. Houston, Wachtell, Lipton, Rosen & Katz, New York City, for the Principal Bank Creditors.

James Katz, Robert F. O'Brien, of counsel, Tomar, Parks, Seliger, Simonoff & Adourian, Haddonfield, N.J., for amicus curiae, Glass, Pottery, Plastics & Allied Workers Intern. Union, AFL-CIO-CLC.

David M. Silberman, Laurence Gold, Washington, D.C., for amicus curiae, American Federation of Labor and Congress of Industrial Organizations, AFL-CIO.

Before: ADAMS, SLOVITER, and MANSMANN, Circuit Judges.

OPINION OF THE COURT

SLOVITER, Circuit Judge.

I. ISSUE

In NLRB v. Bildisco & Bildisco, 465 U.S. 513, 104 S.Ct. 1188, 79 L.Ed.2d 482 (1984), the Supreme Court held that the debtor-in-possession may reject its collective bargaining agreements, subject to the approval of the bankruptcy court which must balance the equities of the affected parties. Thereafter, following considerable debate and controversy, Congress enacted section 1113 of the Bankruptcy Code, 11 U.S.C. Sec. 1113 (Supp. II 1984), which establishes the procedures to be followed and the conditions that must be met before the bankruptcy court may authorize such a rejection. On May 31, 1985, Wheeling-Pittsburgh Steel Corp., a debtor-in-possession under Chapter 11 of the Bankruptcy Code, sought authorization in the bankruptcy court to reject its collective bargaining agreements with the United Steelworkers of America, AFL-CIO-CLC ("Union" or "Steelworkers"). After a four-day hearing, the bankruptcy court authorized Wheeling-Pittsburgh to do so, finding that it had satisfied the requirements of the statute. The district court affirmed that order, and the Union appeals. Before us are important matters of first impression for an appellate court regarding the interpretation of the statute. Amici Curiae briefs have been filed by the American Federation of Labor and Congress of Industrial Organizations, and the Glass, Pottery, Plastics and Allied Workers International Union, AFL-CIO-CLC.

II. FACTUAL BACKGROUND

Wheeling-Pittsburgh is the seventh largest steel manufacturing corporation in the United States. In the late 1970's, Wheeling-Pittsburgh began a major capital investment program to become one of the most modern and efficient major United States producers. The price of such efficiency was heavy borrowing. Wheeling-Pittsburgh's long-term debt increased from $170 million at the end of 1979 to $527 million at the end of 1984. A 1982 recession adversely affected the steel industry. The Company's losses in 1982, 1983 and 1984 and the need to pay principal and interest due on the modernization loans substantially weakened its financial position.

For some years, Wheeling-Pittsburgh and other major steel corporations, organized as the "Steel Company Coordinating Committee", have engaged in coordinated collective bargaining with the Steelworkers, and, as a result, their workers' wages and benefits were generally the same. Wheeling-Pittsburgh's average gross labor costs (including wages, benefits, current pension costs and other benefits for retirees, and payroll taxes) under the 1980 collective bargaining agreement were The December 1982 concession was made as part of a new three and a half year collective bargaining agreement scheduled to expire on July 31, 1986. It is that contract that is the subject of the dispute at issue before us. The Union agreed to concessions that reduced the average labor cost to $18.60 an hour at its lowest point. In return, Wheeling-Pittsburgh agreed to a profit sharing plan. The new agreement provided for gradual restoration of the Union concessions so that the average labor cost per hour would return to $25. By the end of 1984, the average labor cost had been restored to $21.40, and further restorations were due in 1985.

about $25 per hour. Because of its financial problem, Wheeling-Pittsburgh asked the Union for concessions twice in 1982. The April concession consisted of a $1.65 an hour reduction in labor costs in return for entitlement to preferred stock which each employee could redeem when s/he quit, died or retired.

At the end of 1984, Wheeling-Pittsburgh again asked for concessions, this time the cancellation of all scheduled restorations. The Union agreed to defer restorations while its accounting firm, Arthur Young & Co., analyzed Wheeling-Pittsburgh's financial reports to determine the extent of its financial distress. When Arthur Young confirmed Wheeling-Pittsburgh's condition, the Union agreed to defer restorations indefinitely. In mid-January 1985, Wheeling-Pittsburgh asked the Union for a fourth reduction in labor cost. The Union, however, refused to make further concessions until Wheeling-Pittsburgh gained concessions from its lenders, who had made none to that date.

After mediation efforts, Wheeling-Pittsburgh issued a restructuring proposal on March 8, 1985, which sought concessions from the Union, the lenders, and shareholders. It asked the Union for a labor cost of approximately $19 for three years and cancellation of the restorations, with the employees to receive preferred or common stock in Wheeling-Pittsburgh in return. Wheeling-Pittsburgh asked all of its lenders for a 100% moratorium on principal payments for 1985-1986, and some of its lenders for an additional 50% moratorium for 1987-1989, and/or reductions in interest, with the lenders to be given common stock in return. Significantly, the Company did not propose pledging its current assets for past debts. Wheeling-Pittsburgh also proposed a continued suspension of dividends to its preferred stockholders, elimination of preemptive rights for its common stockholders, and dilution of their present holdings to the extent necessary to compensate labor and lenders for their sacrifices.

The Union's counter-offer to Wheeling-Pittsburgh called for a two-year contract with labor costs of $19.50 the first year and $20.00 the second year; cancellation of the scheduled restorations; common stock as compensation; the right to appoint a member of Wheeling-Pittsburgh's Board of Directors; and Wheeling-Pittsburgh's promise not to pledge its current assets to the banks to secure the old debt. The Union believed the current assets were the "life preserver" needed to keep the Company and the employees' jobs afloat in the event of economic difficulties.

The lenders' counter-proposal to Wheeling-Pittsburgh called for deferment of about $210 million in outstanding indebtedness; $40 million in additional credit over the next four years; and Wheeling-Pittsburgh's pledging its current accounts receivable and inventory (about $300 million in value) to secure the entire debt. Neither the Union nor the lenders were willing to compromise on their respective positions concerning the pledge of current assets to secure the old loans, and the restructuring proposal collapsed. Wheeling-Pittsburgh filed a Chapter 11 petition for bankruptcy on April 16, 1985.

Thereafter, on May 9, 1985, Wheeling-Pittsburgh presented its proposal to the Union for modifying the current collective bargaining agreement. Wheeling-Pittsburgh proposed a five-year contract which included the following items: an average labor cost not to exceed $15.20 an hour; a The Union hired Lazard Freres & Co. and Arthur Young & Co. to assist it in evaluating the Wheeling-Pittsburgh proposal and formulating a response. The financial advisors sought certain financial information from Wheeling-Pittsburgh, which provided some, but not all, of the requested information. On May 24, Wheeling-Pittsburgh announced it would provide no additional information, demanded the Union's response by May 30, and threatened to seek authorization to reject the agreement. When the Union replied that it could not respond until it had all the requested information, Wheeling-Pittsburgh filed its application with the bankruptcy court for authorization to reject the collective bargaining agreement on May 31, 1985.

reduction in medical and insurance benefits, as part of the employment cost adjustment; elimination of supplemental unemployment benefit guarantees for employees with 20 or more years' service and cost-of-living adjustments; elimination of various other prior obligations, including payments of the pension plan, redemption fund and cash dividends on preferred stock; and elimination of the profit sharing plan. These proposals were accompanied by five-year forecasts far more pessimistic than those that had accompanied the restructuring proposal the Company had offered two months earlier in March, before the bankruptcy.

The bankruptcy court held a hearing on Wheeling-Pittsburgh's motion from June 17-21, 1985. On July 17, 1985, it issued a decision authorizing Wheeling-Pittsburgh to reject the agreement. Wheeling-Pittsburgh did so, and announced that it would...