In re Continental Airlines Corp.
| Citation | 64 BR 865 |
| Decision Date | 26 June 1986 |
| Docket Number | 83-04020-H1-5,Bankruptcy No. 83-04019-H2-5,83-04021-H3-5 and 85-04022-H3-5. |
| Parties | In re CONTINENTAL AIRLINES CORPORATION, Continental Airlines, Inc. Texas International Airlines, Inc., TXIA Holdings Corporation. |
| Court | United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Southern District of Texas |
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John J. Gallagher, Clinton R. Batterton, Richard N. Appel, Charles L. Warren, Akin, Gump, Strauss, Hauer & Feld, Washington, D.C., Harvey R. Miller, Bruce Zirinsky, Weil, Gotshal & Manges, New York City, Myron M. Sheinfeld, Lenard M. Parkins, Sheinfeld, Maley & Kay, Houston, Tex., for Continental Airlines Corp.
Claude Montgomery, Beatrice R. Kahn, Booth, Marcus & Pierce, New York City, Bruce Simon, Michael Abram, Babette Ceccotti, Cohen, Weiss & Simon, New York City, for Air Line Pilots Ass'n.
FINDINGS OF FACT AND CONCLUSIONS OF LAW WITH RESPECT TO MOTION TO DISALLOW OR TO ESTIMATE AT ZERO VALUE THE CONTRACT REJECTION DAMAGES CLAIMS FILED BY THE AIR LINE PILOTS ASSOCIATION
The following facts are either stipulated, uncontested or established by the evidentiary record in this case, of which the Court takes notice and is considered a proper and adequate basis on which to make these Findings and Conclusions:
FINDINGS OF FACT
1. On September 24, 1983, the Debtors filed petitions for reorganization under chapter 11 of the United States Bankruptcy Code, 11 U.S.C. § 1101, et seq.
2. Thereafter, Continental filed a motion pursuant to § 365(a) of the Bankruptcy Code, 11 U.S.C. § 365(a), to reject the collective bargaining agreement between Continental Airlines, Inc. ("Continental") and the Air Line Pilots Association ("ALPA"). After an extended evidentiary hearing, the Court on June 19, 1984, entered its order rejecting the collective bargaining agreement between Continental and ALPA that had been in effect on the day Continental filed its bankruptcy petition. Order Allowing Rejection of Collective Bargaining Agreements June 19, 1984. On April 26, 1985, ALPA filed a proof of claim in the amount of $408,348,552.00 for damages arising from the rejection of the collective bargaining agreement.
3. By its terms, the ALPA contract was amendable on September 30, 1984.
4. In its proof of claim, ALPA claimed contract rejection damages for the period September 24, 1983 through and including September 30, 1985, one full year after the scheduled amendable date.
5. On September 23, 1985, Continental filed a Motion for Summary Judgment on Liability for Contract Rejection Damages and to Estimate the Value of Contract Damage Claims. ALPA and the Union Committee strongly opposed Continental's motion.
6. The ALPA contract relative to the motion here is in evidence in the record described above of which this Court has taken notice. This contract is clear and unambiguous. The contract does not contain any guarantee of employment. Instead, it contains terms as to the wages and working conditions which will be provided to employees covered by the agreements when work is available. When work is not available, the contract provides that management may furlough employees, subject to notice of furlough and furlough pay requirements, which themselves are subject to exceptions for various contingencies not within management's control.
7. At the time of the filing of the bankruptcy petitions in this matter, Continental unilaterally modified work rules and reduced wages and fringe benefits paid to pilots represented by ALPA as well as those of flight attendants and other employees, pending this Court's approval of Continental's motion to reject the contracts under 11 U.S.C. § 365. See In re Continental Airlines Corp., 38 B.R. 67 (Bankr. S.D.Tex.1984). This Court approved the rejection of the pilot contract, effective retroactively to September 24, 1983, in accordance with 11 U.S.C. § 502(g). This Court found that if Continental had not made changes in its labor contracts, including specifically the ALPA contract, within a short time Continental would have run out of cash and gone out of business. Memorandum of Authorities Authorizing Rejection of Air Line Pilots Association Collective Bargaining Agreements (August 17, 1984) at 33; Findings of Fact and Conclusions of Law Relating To The Rejection Of The Collective Bargaining Agreement With ALPA (August 17, 1984) at ¶¶ 28, 40.
1. The unions contend that this Court, which rejected the ALPA and UFA collective bargaining agreements pursuant to the Bankruptcy Code itself, 11 U.S.C. § 365, now does not have jurisdiction to liquidate the claim or to estimate the value of any damages created thereby through the Bankruptcy Code "breach" of these contracts. 11 U.S.C. § 365(g). This contention is clearly without merit. Bankruptcy courts have jurisdiction to decide the allowability of all claims against an estate. 28 U.S.C. §§ 1334(a), 157(b)(1), (b)(2)(B).
2. The Court has jurisdiction to resolve on the merits the question of liability, if any, and damage claims for contract rejection presented by the present motion. The motion does not require direct interpretation or application of the statutory language of Federal Labor Statutes or any other federal statutes regulating any interstate commerce, and therefore § 157(d) is inapplicable here. The question rests squarely in the bankruptcy claims adjudication process. 11 U.S.C. § 502. In re Continental Air Lines, Inc., Order Granting Debtors' Motion to Estimate, 57 B.R. 842 (S.D.Tex.1985).
3. Further, use of the estimation procedure by this Court will allow Continental's reorganization plan to proceed without unnecessary or costly delay to Continental or other creditor groups who may have reached agreement relative to debt repayment. The estimation procedure can, however, be simplified by resolution of the summary judgment issues now on file by the Court's review of undisputed facts and facts previously established in the case, and application of the appropriate law.
4. The courts have recognized that bankruptcy judges have discretion to determine the allowability of claims in bankruptcy even if the claim ordinarily would have been liquidated by another tribunal. Of course, in the absence of bankruptcy, every claim would have been resolved in another forum. In Zimmerman v. Continental Air Lines, Inc., 712 F.2d 55, 56 (3d Cir. 1983), cert. denied, 464 U.S. 1038, 104 S.Ct. 699, 79 L.Ed.2d 165 (1984), a manufacturing company entered into a contract with Continental which contained an arbitration clause. The Arbitration Act, 9 U.S.C. §§ 1-208, "requires a federal court to stay proceedings pending arbitration if issues pertinent to the dispute are also the subject of an arbitration agreement between the parties." 712 F.2d at 56. Subsequently, the manufacturing company went into bankruptcy and initiated adversary proceedings against Continental alleging that Continental's claim under the contract was improper. Under the authority of the Arbitration Act, Continental requested that the matter be deferred to arbitration.
The bankruptcy court there denied Continental's request, the Third Circuit affirmed, and the Supreme Court denied certiorari. Relying on the policies underlying the 1978 Bankruptcy Reform Act, the Third Circuit held that the Act impliedly modified the express provisions of the Arbitration Act. 712 F.2d at 56, 59.
Bankruptcy proceedings, however, have long held a special place in the federal judicial system. Because of their importance to the smooth functioning of the nation\'s commercial activities, they are one of the few areas where Congress has expressly preempted state court jurisdiction. See 28 U.S.C. § 1334. While the sanctity of arbitration is a fundamental federal concern, it cannot be said to occupy a position of similar importance. Therefore, because of the importance of bankruptcy proceedings in general, and the need for the expeditious resolution of bankruptcy matters in particular, we hold that the intentions of Congress will be better realized if the bankruptcy Reform Act is read to impliedly modify the Arbitration Act. Thus while a bankruptcy court would have the power to stay proceedings pending arbitration, the use of this power is left to the sound discretion of the Bankruptcy Court.
712 F.2d at 59-60 (emphasis supplied).
5. The unions rely upon Gary Aircraft Corp. v. United States (In re Gary Aircraft Corp.), 698 F.2d 775 (5th Cir.), cert. denied, 464 U.S. 820, 104 S.Ct. 82, 78 L.Ed.2d 92 (1983), and argue that bankruptcy courts lack jurisdiction to disallow claims in disputes that Congress has committed to a specialized tribunal. The union's reliance on Gary Aircraft is misplaced. Gary merely established that, under the 1898 Act, bankruptcy courts ordinarily should defer to the Armed Services Board of Contract Appeals ("ASBCA") for the liquidation of claims arising from government defense contracts. (The Gary case factually originated with Gary filing a claim under its contract against the government, and with the government filing a counterclaim.) The case does not provide that bankruptcy courts have no "jurisdiction" over such claims. Moreover, the Fifth Circuit based its decision on its findings that deferral would not impair the satisfaction of other bankruptcy claims and that government contracts are extremely complex, technical and esoteric, 698 F.2d at 782, not on the proposition that every claim in bankruptcy which otherwise would have been decided by a "specialized tribunal" should be liquidated by that tribunal.
To the contrary, the Fifth Circuit expressly acknowledged that, where bankruptcy court estimation or liquidation by the ASBCA would unduly delay the administration of the estate, the bankruptcy court retains the power under the 1898 Act to disallow the claim in its entirety. 698 F.2d at 784 n. 7. Under the 1978 Bankruptcy Code, which applies to this proceeding, the authority of a bankruptcy court to estimate...
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