In re REA Exp., Inc., Bankruptcy No. 75 B 253.

• Decision Date: 01 May 1981
• Docket Number: Bankruptcy No. 75 B 253.
• Parties: In re REA EXPRESS, INC., f/k/a Railway Express Agency, Inc., Bankrupt.
• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York

10 B.R. 812 (1981)

In re REA EXPRESS, INC., f/k/a Railway Express Agency, Inc., Bankrupt.

Bankruptcy No. 75 B 253.

United States Bankruptcy Court, S.D. New York.

May 1, 1981.

Whitman & Ransom, Angel & Frankel, New York City, for trustee.

O'Donnell & Schwartz, New York City, for Non-Union Emp.

MEMORANDUM & ORDER

JOHN J. GALGAY, Bankruptcy Judge.

Claimants Roger Melzer and Jasmine Melzer petition this Court to be named class representatives of all non-union employees of REA Express, Inc., f/k/a Railway Express Agency, Inc., (hereinafter "REA"). They do so for the purpose of confronting as a class the objections of the trustee in bankruptcy to the non-union employees' claims. During Chapter XI administration and after REA was adjudicated a bankrupt, approximately one thousand non-unionized employees filed claims in proceedings of this court for unpaid holiday pay, vacation pay and severance pay, together with a claim against a 10% wage reduction which the debtor in possession unilaterally imposed. The trustee has moved on grounds which it treats as dispositive of all non-union employee claims, to disallow, reduce and reclassify those claims. Claimants allege that since the trustee's application does not deal with claims of specific individuals, but rather with issues applying equally to claims of all non-union employees, and since these non-unionized employees have no means outside of retaining individual counsel to voice their views on these broad issues, the only effective way to defend their claims is through the use of the class action device. Claimants accordingly have petitioned this Court for class action certification, asserting that the prerequisites for such status as set out in Rule 23 of the Federal Rules of Civil Procedure are satisfied. This Court grants class action certification.

Bankruptcy Rule 723 of Part VII incorporates without change FRCP Rule 23, governing class actions, for all adversary proceedings. Proceedings involving the filing of an objection to a claim, rather than the seeking of an affirmative money judgment or recovery of property, are not "adversary proceedings" as defined in Rule 701. See Advisory Committee Notes following Rule 701. Nevertheless, Rule 914, which governs "contested matters" such as claim objections, incorporates certain rules for adversary proceedings into the rules for contested matters and allows the court in its discretion to apply any of the Rules of Part VII, including 723, to a contested matter. The Advisory Committee Notes for Rule 914 outline the reasons for use of such discretion:

Litigation of a particular dispute although not an adversary proceeding as defined in Rule 701, may become sufficiently serious and complicated to warrant the courts direction that the procedure be governed by rules that govern such proceedings.

This Court finds that the present matter merits such treatment.

Given the nature of the claims and objections concerned, it is clear that if the objections of the trustee are sustained, the nonunion employees' claims will be disallowed, reduced or reclassified without any consideration of individual claims. It is only just that employees be empowered to respond to the general objections on a unified basis as well. Moreover, a unified response appears to be the only means by which all non-union employees may meaningfully participate in the objection hearings. In light of these factors and the trustee's lack of objection to the motion for class action status, this court finds Rule 723 applicable and subjects this matter to the scrutiny of FRCP 23 governing the preconditions for class action.

Under Rule 23(a) four prerequisites to class action must be fulfilled. First, the class must be so numerous that joinder of all members is impracticable. The class here involved consists of approximately one thousand non-union employees spread out across the country. It is clearly impractical to bring all of these claimants before this Court. Joinder is thus clearly inappropriate.

Second, Rule 23(a) requires questions of law or fact common to the class. This requirement is also easily satisfied. These employees worked under common terms and conditions. The merits of the case will turn on whether the debtor in possession expressly disaffirmed contracts and understandings. One issue in particular is whether the debtor in possession rejected the Industrial Relations Procedures Manual governing wages and working conditions vis a vis non-union employees. The trustee...