In re Continental Airlines, Inc.

• Decision Date: 14 September 1992
• Docket Number: Civ. A. No. 92-326-JLL.
• Citation: In re Continental Airlines, Inc., 145 B.R. 404 (D. Del. 1992)
• Parties: In re CONTINENTAL AIRLINES, INC., et al., Debtors. AIR LINE PILOTS ASSOCIATION, INTERNATIONAL and Donald Henderson, Appellants, v. CONTINENTAL AIRLINES, INC., et al., Appellees.
• Court: U.S. District Court — District of Delaware

145 B.R. 404 (1992)

In re CONTINENTAL AIRLINES, INC., et al., Debtors AIR LINE PILOTS ASSOCIATION, INTERNATIONAL and Donald Henderson, Appellants, v. CONTINENTAL AIRLINES, INC., et al., Appellees.

Civ. A. No. 92-326-JLL.

United States District Court, D. Delaware.

September 14, 1992.

Stephen W. Spence of Phillips, Goldman & Spence, P.A., Wilmington, Del., and Babette A. Ceccotti and Peter D. DeChiara of Cohen, Weiss and Simon, New York City, of counsel, for appellants.

James L. Patton, Jr., Laura Davis Jones and Robert S. Brady of Young, Conaway, Stargatt & Taylor, Wilmington, Del., and John J. Gallagher and Margaret H. Spurlin of Paul, Hastings, Janofsky & Walker, Washington, D.C., of counsel, for appellees.

OPINION

LATCHUM, Senior District Judge.

1. INTRODUCTION

Appellants Donald Henderson and Air Line Pilots Association International ("Collectively referred to as ALPA") seek review of the final order entered by the United States Bankruptcy Court for the District of Delaware entered on May 12, 1992, granting the motion of Appellee Continental Airlines, Inc., ("Continental") for judgment on the pleadings. (Docket Item "D.I." 25.) This Court's jurisdiction is invoked pursuant to 28 U.S.C. § 158(a).

II. FACTS

This appeal represents the most recent clash between protagonists Continental and ALPA¹. On September 24, 1983, Continental Airlines filed a petition for voluntary reorganization under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas. See Air Line Pilots Association, International v. O'Neill, ___ U.S. ___, 111 S.Ct. 1127, 113 L.Ed.2d 51 (1991). Thereafter, the Bankruptcy Court approved Continental's repudiation of its collective-bargaining agreement with ALPA and Continental's institution of "emergency work rules" which reduced the salary and benefit packages of pilots by nearly 50%. Id. In retaliation, ALPA called for a strike of all Continental pilots. The strike, which lasted more than two years, "was acrimonious, punctuated by incidents of violence, and the filing of a variety of law suits, charges, and countercharges." Id.

In October 1985, while Continental was still engaged in reorganization in the Bankruptcy Court for the Southern District of Texas, ALPA and Continental entered into a settlement agreement, thus ending the strike. Bankruptcy Judge T. Glover Roberts was named interest arbitrator by both Continental and ALPA and was empowered to resolve any and all disputes between them. See In Re Continental Airlines Corporation, 907 F.2d 1500, 1503 (5th Cir. 1990). With the consent of both parties, Judge Roberts issued an "Amended Order and Award" which embodied the terms of the settlement agreement. Id.

The "Amended Order and Award" contains two provisions which are the focus of this appeal. The first is a nondiscrimination clause which provides that "no pilot shall be subject to discrimination, fines or harassment, either by ALPA or by the Company e.g. Continental, due to legally protected strike activities, work during the strike or service as a replacement pilot during the strike period." (D.I. 5 at Exhibit "Ex." 14.) The second provision of the "Amended Order and Award" at issue states that "any dispute which may arise concerning the interpretation, or application of the terms of this Order and Award . . . may be submitted by the effected pilot in writing to the Company. If the dispute is not satisfactorily resolved within five (5) days, the affected pilot may submit the dispute forthwith to the Bankruptcy Court as an adversary proceeding." (D.I. 5 at Ex. 14.)

After emerging from the proceedings in the Bankruptcy Court for the Southern District of Texas, Continental again encountered serious financial difficulties and again sought to reorganize under Chapter 11. Thus, Continental filed a voluntary petition for reorganization in the United States Bankruptcy Court for the District of Delaware on December 3, 1990. As part of its second reorganization effort, Continental moved the Bankruptcy Court for the District of Delaware to approve a Memorandum of Understanding ("MOU") between Continental and its pilots. (D.I. 5 at Ex. 1.) In essence, the MOU provided for substantial reductions in the pilots' salaries and benefits. As consideration for these concessions, Continental promised in the MOU to increase pilot salaries in the future, to establish funds for pilots to seek legal and professional advice, to provide free coach passes to certain pilots, and to help pilots make lateral moves in the event that a substantial part of the company was liquidated. (D.I. 5 at Ex. 10.) Furthermore, the MOU provided that Continental would grant a pension credit under the Continental Retirement Plan to pilots and all other employees who were in active service between January 1 1984 and September 1, 1988. (D.I. 5 at Ex. 10.)

On May 3, 1991, ALPA filed an adversary proceeding in the Bankruptcy Court for the Southern District of Texas objecting to the MOU on the grounds that the active service pension credit provision contained therein contravened the anti-discrimination provision in Bankruptcy Judge Roberts "Amended Order and Award." (D.I. 5 at Ex. 3.) ALPA contended that the pension credit provision, although facially neutral, was discriminatory in purpose and effect against Continental pilots who participated in the ALPA strike. ALPA argued that the pension credit provision denied pilots who participated in the ALPA ordered strike the same pension benefits as pilots who continued in active service with Continental during the strike. Id. Since the striking pilots were not in active service during the period of the strike from October 1983 through October 31, 1985, and did not become reinstated in active service until January 1, 1986, striking pilots are not eligible to receive the full amount of the pension credit. By contrast, pilots who remained in active service with Continental throughout the strike receive the full amount of the pension credit. Id.

On May 6, 1991, while the adversary proceeding in the Bankruptcy Court for the Southern District of Texas was still pending, ALPA filed an objection to Continental's motion to approve the MOU in the Bankruptcy Court for the District of Delaware. (D.I. 5 at Ex. 2.) This objection was premised on the same grounds asserted by ALPA in its adversary proceeding in the Bankruptcy Court for the Southern District of Texas. Id. In addition, ALPA argued that the Bankruptcy Court for the District of Delaware should condition any approval of the MOU upon the resolution of the adversary proceeding in the Bankruptcy Court for the Southern District of Texas challenging the active service pension credit provision. Id. In support of its position, ALPA argued that the terms of the "Amended Order and Award" issued by Judge Roberts expressly provided that any disputes as to the interpretation of the settlement were to be resolved in the Bankruptcy Court for the Southern District of Texas. Id.

On July 11, 1991, Continental filed an adversary proceeding in the Bankruptcy Court for the District of Delaware seeking a declaratory judgment that: (i) ALPA's adversary proceeding violated the automatic stay provision contained in § 362(a)(3) of the Bankruptcy Code; and (ii) that as a matter of law, the MOU did not discriminate against former strikers. (D.I. 5 at Ex. 3.) Before the Bankruptcy Court for the District of Delaware could rule upon Continental's motion, Continental and the various constituencies in the Delaware bankruptcy proceeding agreed to an Amended Memorandum of Understanding ("AMOU") which postpones the effective date of the active service pension credit provision until after the reorganization plan is confirmed by the Bankruptcy Court. (D.I. 5 at Ex. 10.) In addition, the AMOU provides that in the event the reorganization plan is not confirmed by the Bankruptcy Court, the pilots will have an allowed administrative expense claim in any subsequent bankruptcy proceedings equal in amount to the lost wages forgone under the AMOU. (D.I. 6 at Ex. 18.)

On February 5, 1992, Continental moved the Bankruptcy Court for the District of Delaware for approval of the AMOU under § 363(b)(1) of the Bankruptcy Code. (D.I. 5 at Ex. 10.) On March 13, 1992, ALPA filed an objection to the AMOU in the Bankruptcy Court for the District of Delaware, restating its earlier objections that the active service pension credit provision of the AMOU violated the anti-discrimination provision of Judge Robert's "Amended Order and Award" and that any approval of the AMOU should be conditioned upon the resolution of this issue by the Bankruptcy Court for the Southern District of Texas. (D.I. 5 at Ex. 10.)

After conducting an evidentiary hearing on these two motions, the Bankruptcy Court for the District of Delaware issued an oral ruling from the bench approving the entire AMOU and overruling ALPA's specific objections thereto. (D.I. 6 at Ex. 19.) The Bankruptcy Court for the District of Delaware rejected ALPA's contention that any approval of the AMOU would be contingent upon the determination of the discrimination issue by the Bankruptcy Court for the Southern District of Texas and held that "active service credit provision did not discriminate against strikers as a matter of law." Id. Immediately following this oral ruling by the Bankruptcy Court for the District of Delaware, Continental made an oral motion for judgment on the pleadings in the adversary proceeding filed by Continental on June 11, 1992. Continental argued that judgment on the pleadings was appropriate under the circumstances because the Bankruptcy Court for the District of Delaware in its oral ruling approving the AMOU had ruled that the AMOU did not discriminate against pilots who had participated in the Continental strike as a matter of law and thus any further consideration of this claim was precluded under the doctrine of res judicata. Id. Without further...