In re Chi. Constr. Specialties, Inc.

Decision Date08 May 2014
Docket NumberNo. 13BK31265.,13BK31265.
Citation510 B.R. 205
CourtU.S. Bankruptcy Court — Northern District of Illinois
PartiesIn re CHICAGO CONSTRUCTION SPECIALTIES, INC., Debtor.

OPINION TEXT STARTS HERE

Bruce Dopke, Esq., Bruce Dopke, Attorney at Law, Schaumburg, IL, for Debtor/Movant.

Christina K. Krivanek, Esq., Office of Fund Counsel, Chicago, IL, for Respondents.

MEMORANDUM DECISION

TIMOTHY A. BARNES, Bankruptcy Judge.

The matter before the court arises out of the Motion To Authorize the Debtor To Reject All Collective Bargaining Agreements to Which It Is a Party (the “ Motion ”) brought by Chicago Construction Specialties, Inc. (the “ Debtor ”). The Construction and General Laborers' District Council of Chicago and Vicinity (the “ Union ”) and the Laborers' Pension and Welfare Funds (the “ Funds ”) (collectively, the “ Respondents ”), parties to collective bargaining agreements with the Debtor, have objected to the Motion. Upon review of the parties' respective filings and after holding a hearing on the matter, the court finds that the Debtor has satisfied the requirements under 11 U.S.C. § 1113 for rejection of collective bargaining agreements in the context of a chapter 11 liquidation and, accordingly, grants the Motion.

JURISDICTION

The federal district courts have “original and exclusive jurisdiction” of all cases under title 11 of the United States Code (the “ Bankruptcy Code ”). 28 U.S.C. § 1334(a). The federal district courts also have “original but not exclusive jurisdiction” of all civil proceedings arising under title 11 of the United States Code, or arising in or related to cases under title 11. 28 U.S.C. § 1334(b). District courts may, however, refer these cases to the bankruptcy judges for their districts. 28 U.S.C. § 157(a). In accordance with section 157(a), the District Court for the Northern District of Illinois has referred all of its bankruptcy cases to the Bankruptcy Court for the Northern District of Illinois. N.D. Ill. Internal Operating Procedure 15(a).

A bankruptcy judge to whom a case has been referred may enter final judgment on any core proceeding arising under the Bankruptcy Code or arising in a case under title 11. 28 U.S.C. § 157(b)(1). A motion to reject collective bargaining agreements pursuant to section 1113 of the Bankruptcy Code arises in a case under title 11. As such, such a motion is a core proceeding and within the bankruptcy court's statutory and constitutional jurisdiction. 28 U.S.C. § 157(b)(2)(A) and (O); In re Garofalo's Finer Foods, Inc., 117 B.R. 363, 365 (Bankr.N.D.Ill.1990) (Squires, J.).

Accordingly, final judgment is within the scope of the court's authority.

PROCEDURAL HISTORY

In considering the Motion [Docket No. 42], the court has evaluated the arguments of the parties at the February 5, 2014 hearing on the Motion (the “ Hearing ”), has reviewed and considered the Motion itself, and has considered:

(1) Funds' Objection to Motion To Authorize the Debtor To Reject All Collective Bargaining Agreements to Which It Is a Party [Docket No. 53] 1; and

(2) Debtor's Reply in Support of Its Motion To Authorize the Debtor To Reject All Collective Bargaining Agreements to Which It Is a Party [Docket No. 60].

The court has also taken into consideration any and all exhibits submitted in conjunction with the foregoing. Though these items do not constitute an exhaustive list of the filings in the above-captioned bankruptcy case, the court has taken judicial notice of the contents of the docket in this matter. See Levine v. Egidi, No. 93C188, 1993 WL 69146, at *2 (N.D.Ill. Mar. 8, 1993); Inskeep v. Grosso ( In re Fin. Partners ), 116 B.R. 629, 635 (Bankr.N.D.Ill.1989) (Sonderby, J.) (authorizing a bankruptcy court to take judicial notice of its own docket).

BACKGROUND

From consideration of the foregoing, the court finds as undisputed the following facts:

(1) Prior to selling substantially all of its assets and commencing this bankruptcy case, the Debtor performed certain construction demolition work for general contractors in the Chicago metropolitan area.

(2) On or about August 6, 2008,2 in connection with its construction demolition work, the Debtor entered into an “Independent Construction Industry Collective Bargaining Agreement” (the “ CBA ”) with the Union.

(3) By signing the CBA, and specifically, by virtue of the provisions of paragraph 2 of the CBA, the Debtor bound itself as a party to a host of other collective bargaining agreements which were then in force between the Union and a number of other health and welfare trusts and entities (the “ Benefits Trusts ”). The Benefits Trusts were designed to provide employment benefits to the Debtor's unionized work force and had each designated the Funds to be their agent for collection and other purposes.

(4) On February 8, 2013, the Debtor ceased all business operations.

(5) In May 2013,3 the Debtor disposed of substantially all of its tangible assets at a public auction.

(6) On August 5, 2013, the Debtor filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code.

(7) Also on August 5, 2013, following the commencement of the case, the Debtor, through its counsel, sent a letter to the Respondents and their counsel, to inform them that the Debtor proposed to reject the CBA and all related collective bargaining agreements pursuant to 11 U.S.C. § 1113 (the “ Notice ”).

(8) On December 11, 2013, the Debtor filed the Motion.

APPLICABLE LAW

The matter before the court lies at the nexus of bankruptcy and labor laws. This matter is one of apparent first impression in this court as to the interpretation of section 1113 of the Bankruptcy Code as it pertains to a liquidating chapter 11 case.

Section 1113 governs the rejection or modification of a collective bargaining agreement by a chapter 11 trustee or debtor in possession. It provides, in pertinent part, as follows:

(a) The debtor in possession, or the trustee if one has been appointed under the provisions of this chapter, other than a trustee in a case covered by subchapter IV of this chapter and by title I of the Railway Labor Act, may assume or reject a collective bargaining agreement only in accordance with the provisions of this section.

(b)(1) Subsequent to filing a petition and prior to filing an application seeking rejection of a collective bargaining agreement, the debtor in possession or trustee (hereinafter in this section trustee shall include a debtor in possession), shall—

(A) make a proposal to the authorized representative of the employees covered by such agreement, based on the most complete and reliable information available at the time of such proposal, which provides for those necessary modifications in the employees benefits and protections that are necessary to permit the reorganization of the debtor and assures that all creditors, the debtor and all of the affected parties are treated fairly and equitably; and

(B) provide, subject to subsection (d)(3), the representative of the employees with such relevant information as is necessary to evaluate the proposal.

(2) During the period beginning on the date of the making of a proposal provided for in paragraph (1) and ending on the date of the hearing provided for in subsection (d)(1), the trustee shall meet, at reasonable times, with the authorized representative to confer in good faith in attempting to reach mutually satisfactory modifications of such agreement.

(c) The court shall approve an application for rejection of a collective bargaining agreement only if the court finds that—

(1) the trustee has, prior to the hearing, made a proposal that fulfills the requirements of subsection (b)(1);

(2) the authorized representative of the employees has refused to accept such proposal without good cause; and

(3) the balance of the equities clearly favors rejection of such agreement....

(f) No provision of this title shall be construed to permit a trustee to unilaterally terminate or alter any provisions of a collective bargaining agreement prior to compliance with the provisions of this section.

11 U.S.C. § 1113 (emphasis added).

A debtor—as the movant—has the burden of proof with respect to a request under section 1113 and must demonstrate each element by preponderance of the evidence. Garofalo's Finer Foods, Inc., 117 B.R. at 370. As with all matters before the court, however, once a prima facie

case has been established, the burden then shifts to the party opposing the relief requested. In re Patriot Coal Corp., 493 B.R. 65, 112 (Bankr.E.D.Mo.2013) ( citing In re American Provision Co., 44 B.R. 907, 909 (Bankr.D.Minn.1984)).

The case at bar turns in part on those burdens, but also on how the underlying elements may be established in a liquidating case under chapter 11. The Debtor argues that it has, within the circumstances of a liquidating case, satisfied the elements of section 1113. The Respondents, standing on the strict requirements of section 1113, insist that the Debtor has not.

In order to better understand the positions of the parties here, it is essential to first understand section 1113 itself. In so doing, the court considers the circumstances surrounding the enactment of section 1113 and its application to liquidations, keeping in mind that [t]he case law in this area is far from controlling.” In re Hostess Brands, Inc., 477 B.R. 378, 380 (Bankr.S.D.N.Y.2012).

A. The Purpose of Section 1113

As noted above, section 1113 governs the rejection or modification of a collective bargaining agreement by a chapter 11 trustee or debtor in possession, and was enacted by Congress, in part, in response to NLRB v. Bildisco & Bildisco, 465 U.S. 513, 104 S.Ct. 1188, 79 L.Ed.2d 482 (1984). In Bildisco, the Supreme Court addressed how collective bargaining agreements would be treated under the relatively new Bankruptcy Code. Id. at 525–26. Bildisco was, for many, a crucial formative case on how the Bankruptcy Code's expansive treatment of a debtor's contracts might override existing and well developed law in...

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