In re Cook United, Inc., Bankruptcy No. B84-02537.

• Decision Date: 28 June 1985
• Docket Number: Bankruptcy No. B84-02537.
• Citation: 50 BR 561
• Parties: In re COOK UNITED, INC., Cook-Car, Inc. and Washington Distributors, Inc., Debtors and Debtors-In-Possession.
• Court: U.S. Bankruptcy Court — Northern District of Ohio

50 B.R. 561 (1985)

In re COOK UNITED, INC., Cook-Car, Inc. and Washington Distributors, Inc., Debtors and Debtors-In-Possession.

Bankruptcy No. B84-02537.

United States Bankruptcy Court, N.D. Ohio, E.D.

June 28, 1985.

Lee J. Hutton, Duvin, Flinker & Cahn, Cleveland, Ohio, for debtors and debtors-in-possession.

Mark A. Rock, Schwarzwald, Robiner, Wolf & Rock, Cleveland, Ohio, for Unions.

MEMORANDUM OF OPINION AND ORDER

JOHN F. RAY, Jr., Bankruptcy Judge.

This matter came on for hearing on the debtors' motion for relief pursuant to 11 U.S.C. Section 1113(e), which seeks modification of existing collective bargaining agreements, the testimony, evidence and briefs of counsel.

The debtors ("Cook") owners and operators of a chain of more than 50 discount department stores located throughout Ohio, Indiana, West Virginia, North Carolina, New York and Georgia, filed Chapter 11 in this Court on October 1, 1984, seeking reorganization of their financial affairs. Thereafter, on April 29, 1985, Cook filed a motion seeking modification and/or rejection of 18 separate collective bargaining agreements with Local Unions Nos. 23, 37, 626, 880, 954, 1059 and 1099 of the United Food and Commercial Workers Union ("Union").

Section 1113 of the Bankruptcy Code (11 U.S.C. § 1113), entitled "Rejection of collective bargaining agreements," provides, in part:

(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.

Cook's motion for modification and/or rejection of its collective bargaining agreement followed the rejection by the Union's locals of a comprehensive package of concessions. Cook estimated that this package would save $4.1 million or $4.3 million, depending on whether 1984 or 1985 employee hours are used to compute savings. The requested concessions included: 10 percent wage reduction for all employees, provided no current employee shall be reduced to less than $4.50 per hour; reduction in the number of holidays; elimination of paid sick days and personal days; and sharp reductions in health and welfare benefits. Cook now seeks to reject or modify its existing collective bargaining agreement in order to implement the proposed changes which the Union rejected.

Both Cook and the Union have cited In re American Provision Co., 44 B.R. 907 (Bankr.D.Minn.1984) in support of their positions. The bankruptcy court in that case outlined a nine-step analysis of the requirements for rejecting a collective bargaining agreement under Section 1113:

1. The debtor in possession must make a proposal to the Union to modify the collective bargaining agreement.

2. The proposal must be based on the most complete and reliable information available at the time of the proposal.

3. The proposed modifications must be necessary to permit the reorganization of the debtor.

4. The proposed modifications must assure that all creditors, the debtor and all of the affected parties are treated fairly and equitably.

5. The debtor must provide to the Union such relevant information as is necessary to evaluate the proposal.

6. Between the time of the making of the proposal and the time of the hearing on approval of the rejection of the existing collective bargaining agreement, the debtor must meet at reasonable times with the Union.

7. At the meetings the debtor must confer in good faith in attempting to reach mutually satisfactory modifications of the collective bargaining agreement.

8. The Union must have refused to accept the proposal without good cause.

9. The balance of the equities must clearly favor rejection of the collective bargaining agreement.

Id. at 909. After careful consideration of the testimony and evidence introduced at hearing, this Court finds that Cook has failed to satisfy elements 3 and 9 of the American Provision test and, therefore, that its motion to modify and/or reject the collective bargaining agreements should be denied.

In analyzing whether proposed modifications were "necessary to permit the reorganization of the debtor," former Bankruptcy Judge Batchelder used the following standard: "The adoption of the modifications would result in a significantly greater probability of the debtor's successfully reorganizing, than would result if the debtor were required to continue under the...