In re Unit Parts Co.

• Citation: 10 BR 970
• Decision Date: 18 May 1981
• Docket Number: Bankruptcy No. 80-01101.
• Parties: In re UNIT PARTS COMPANY, Debtor.
• Court: United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — Western District of Oklahoma

10 B.R. 970 (1981)

In re UNIT PARTS COMPANY, Debtor.

Bankruptcy No. 80-01101.

United States Bankruptcy Court, W.D. Oklahoma.

May 12, 1981.

As Corrected May 18, 1981.

Murray Cohen, Oklahoma City, Okl., trustee and attorney for trustee.

John Hermes and Louis J. Price, Oklahoma City, Okl., for The Bank of America, appearing intermittently.

G. Blaine Schwabe, III, Oklahoma City, Okl., for Borg-Warner Corporation and Borg-Warner Leasing Division of Borg-Warner Acceptance Company, appearing intermittently.

Sara M. Green, Washington, D.C., for National Labor Relations Board.

Kathleen Aure, Fort Worth, Tex., for Region 16, National Labor Relations Board.

Eugene H. Mathews, Oklahoma City, Okl., for Local No. 644, United Food and Commercial Workers AFL-CIO.

Robert E. Funk, Jr., Washington, D.C., for United Food and Commercial Workers International Union and International Food and Commercial Workers International Union District Local No. 644.

John Preefer, New York City, for United Food and Commercial Workers International Union AFL-CIO/CLC District Local 644.

MEMORANDUM OPINION

ROBERT L. BERRY, Bankruptcy Judge.

Statement of the Case

On December 15, 1980, the National Labor Relations Board (NLRB) filed its first amended Proof of Claim in the debtor estate. The claim is based on alleged multiple violations of 29 U.S.C. § 151 et seq., known as the National Labor Relations Act. This claim was filed as a "priority claim believed to be in excess of $345,000.00." In its brief filed after the conclusion of testimony in this matter, the NLRB advised the Court that its claim had accrued to $838,317.58 as of April 1, 1981.

On January 30, 1981, the Trustee filed an objection to the NLRB's claim. Hearing was held on the Trustee's objection on February 17 and 18, 1981, and March 9 and 10, 1981. After close of the evidence, this Court requested briefs of all parties. United Food and Commercial Workers, District Local 644 (Union) participated throughout the hearing and has also filed a brief.

Facts

Unit Parts Company, a remanufacturer of automotive parts, was acquired from the Borg-Warner Corporation in 1976. Since then, production and maintenance workers have been represented by various union organizations until November of 1979 when, through a merger, the Meatcutters Union Local 644 assumed the representation of these employees. At that time a collective bargaining agreement was in effect which had an expiration date of May 19, 1980.

About the first of the year 1980, the company began experiencing business difficulties. Sales dropped and the company became hardpressed to make its monthly bank loan payments. Starting in February, as a result of the decreases in sales, the company starting cutting back production and laying off production employees.

In March of 1980, Mr. Joseph Chicoine, Local 644's Secretary-Treasurer, contacted Mr. Edwin Collins, Director of Industrial Relations at Unit Parts, with regard to the impending expiration of the labor contract. From March through June of 1980, Chicoine met with Collins and/or Mr. Dick Swearingen, Plant Manager, some eight or nine times for negotiations.

While these negotiations continued, the company continued production cut backs and worker layoffs until May, when production had for all practical purposes ceased. When it became apparent to the parties that they would not be able to reach a final agreement before the May 19, 1980, expiration date of the old contract, they executed a letter of agreement, dated May 7, 1980, which provided in part:

"That there shall exist between the Company and the Union an extension to its current Labor Agreement of 28 calendar days. Said Agreement must now expire at 12:01 A.M. the 16th day of June, 1980, as opposed to the original expiration date of the 19th day of May, 1980, at 12:01 A.M.

"That any and all economic agreements made during the above stated contract extension shall be made retroactive to the 19th day of May, 1980."

Prior to the expiration of the extension agreement and unbeknownst to the company at the time, an involuntary bankruptcy petition was filed against the company on June 6, 1980, under Chapter 11 of the Bankruptcy Code. On June 10, 1980, the following agreement was signed by Collins and Chicoine:

"(1) The language agreed to is a complete agreement with respect to non economic issues. However, in the event language from the old agreement hasn\'t been addressed it will be incorporated in the new agreement.

"(2) Trucking language will remain the same as in the agreement dated May 23, 1977 to May 19, 1980.

"(3) Article 23. Grievance Procedure and Arbitration is applicable with respect to contract language.

"(4) In regards to economic issues the agreement will be extended on the day to day basis until the issues are resolved.

The issues to be resolved are Health & Welfare, Pension, Holidays, Vacations, Wages and Cost of Living.

"(5) Article 23. Grievance Procedure and Arbitration and Article 22 No Strike No Lockout is not applicable with respect to economic issues that have not been resolved during the extension. The Local Union reserves the right to strike on economic issues that are not resolved.

"(6) All economic issues will be retroactive back to May 19, 1980.

"(7) The term of agreement shall be from May 19, 1980 to February 20, 1983."

On June 17, 1980, service of the involuntary bankruptcy petition was made on the company. Collins notified Chicoine of this on June 23, 1980.

On June 27, 1980, the company sent a letter to each of its production employees, all of whom had been laid-off, which contained the following:

"Due to the economic inability of Unit Parts Company to continue your employment status, you are hereby terminated effect this date. Your group insurance will remain in effect for the next thirty (30) days."

Copies of these letters were sent to Chicoine.

In his testimony before the National Labor Relations Board (submitted to this Court by agreement), Mr. Edward McQueen, who had been president of Unit Parts until September of 1980, outlined the reasoning behind the action:

". . . Basically, again the specific dates, about the end of March or April we effectively stopped production for all practical purposes. We laid off probably 99 per cent of the work force.

"We had some very very serious cash flow problems that were exacerbated by the fact the bank — the Bank of American sic had a — we had a flow through account — a sic account that was set up that they monitored, and they started capturing the money as it went into the bank account.

"As it turned out, in fact, they caused some checks to be bounced when we had money in the account because they decided to take the money out of the account. So, we had lost control of our cash flow. We had a huge work force that was laid off. No certainty that we could manage our cash flow.

"We tried to as drastically and severely as we could really to try and cutback any kind of asset expenditure. Any kind of extra expenditure even necessary expenditure to conserve what little cash flow we had. . . .

* * * * * *

"The company was basically shut down. We were struggling like crazy trying to figure out how to keep some flow going. We were in bad trouble.

* * * * * *

". . . The employees were terminated really on advice of our counsel. . . .

". . . We were trapped with a large work force that was laid off. The bank had control of the cash, and if we continued the work force in layoff we couldn\'t pay the insurance benefits going forward.

"If we terminated them we couldn\'t pay the severance cost at termination. We didn\'t know with two bad solutions what authority we had with the bankruptcy petition filed, so we went to counsel and said help. Which road do we take, and we terminated the work force. I think it was the 26th. It was a rotten solution either way.

* * * * * *

". . . we paid the termination expense. With the laid off people we paid the termination expense faithfully until we got in under the jurisdiction basically of the court of the bankruptcy, then we could not.

* * * * * *

". . . when somebody would quit, there would be people that were laid off that would quit. They would have vacation and leave benefits that were due them. They were paid until we lost control of that and really had no funds to do it with. That is what I mean by termination expense."

On June 20, 1980, Chicoine filed a grievance with Collins regarding these terminations. According to Mr. Arthur Cleveland, who was the company's accountant in June of 1980, the company's bank account was overdrawn approximately $10,000 and on June 27, 1980, when the employees were terminated, the company owed $99,000 in medical insurance premiums which it would not pay.

On July 7, 1980, an order for relief was entered pursuant to the involuntary bankruptcy petition.

As part of the company's effort to reorganize, it was decided that the company would pursue two separate courses of action. First, the number of different products remanufactured and marketed would be reduced from eight to three. Second, the inventory and other assets of the company that were not to be used in connection with the three products continued, would be liquidated and the proceeds turned over to the Bank of America, the company's primary secured creditor.

In pursuance of these two courses of action, at some time during July or August, the company began to recruit employees. Offers of temporary employment were made for the purpose of preparing for the public auction of the no longer needed assets. Offers of full time employment were also made in connection with gradual resumption of limited production of the three continued product lines. The rates of pay offered in both instances were substantially lower than that paid previous to the company's shut down.

This recruitment was done in two ways. First, a seniority list of former employees was used. Certain employees were selected on the basis of their former supervisors'...