In re Wheeling-Pittsburgh Steel Corp.

• Decision Date: 22 October 1985
• Docket Number: Bankruptcy No. 85-793 PGH.
• Citation: 50 BR 969
• Parties: In re WHEELING-PITTSBURGH STEEL CORPORATION, et al., Debtor.
• Court: U.S. Bankruptcy Court — Western District of Pennsylvania

50 B.R. 969 (1985)

In re WHEELING-PITTSBURGH STEEL CORPORATION, et al., Debtor.

Bankruptcy No. 85-793 PGH.

United States Bankruptcy Court, W.D. Pennsylvania.

July 17, 1985.

As Amended October 22, 1985.

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John J. McLean, Jr., Samuel Braver and M. Bruce McCullough, Buchanan & Ingersoll, P.C., and George Raynovich, Jr., Wheeling-Pittsburgh Steel Corp., Pittsburgh, Pa., for debtor-in-possession.

Michael H. Gottesman and Gary L. Sasso, Bredhoff & Kaiser, Washington, D.C., and Claude D. Montgomery, Booth, Marcus & Pierce, New York City, for United Steelworkers of America, AFL-CIO-CLC.

Joel M. Walker, Pollard & Walker, Pittsburgh, Pa., Warren R. Stern, Thomas Moers Mayer, Dennis F. Cronin, Wachtell, Lipton, Rosen & Katz, New York City, for principal banks.

Michael J. Yurcheshen, Yurcheshen & Baggett, Pittsburgh, Pa., and Harvey R. Miller, Weil, Gotshal & Manges, New York City, for Prudential Life Ins. Co., et al.

Robert G. Sable and Scott Gray, Lampl, Sable, Makoroff & Libenson, Pittsburgh, Pa., and Barbara Kaplan, Stroock, Stroock & Lavan, New York City, for Official Committee of Unsecured Creditors.

Roger J. Lerner of and for the Pension Benefit Guar. Corp., Washington, D.C.

MEMORANDUM OPINION ON MOTION UNDER § 1113

WARREN W. BENTZ, Bankruptcy Judge.

Case Summary

Wheeling-Pittsburgh Steel Corporation ("Wheeling-Pittsburgh" or the "Company") filed for relief under Chapter 11 of the Bankruptcy Code on April 16, 1985.¹ On May 31, 1985, Wheeling-Pittsburgh filed the instant motion under 11 U.S.C. § 1113 for authority to reject its collective bargaining agreements with the United Steelworkers of America (the "Union"). Having considered the testimony and documentary evidence adduced at the hearing, the statements and arguments of counsel, and the briefs of the parties, the court finds that Wheeling-Pittsburgh has established by a preponderance of the evidence the necessary prerequisites for rejection of its collective bargaining agreements under § 1113. Accordingly, and for the reasons discussed below,² the court will authorize the Company's rejection of its collective bargaining agreements with the Union and enter an appropriate order.

Jurisdiction

This court has jurisdiction over the parties and subject matter of this action under 28 U.S.C. § 1334 and the General Order of Reference of the United States District Court for the Western District of Pennsylvania dated October 16, 1984 entered pursuant to 28 U.S.C. § 157. This is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(A).

Background

The debtor-in-possession, Wheeling-Pittsburgh, is the seventh largest steel manufacturing corporation in the United States. Approximately 8,500 of Wheeling-Pittsburgh's employees have the terms and conditions of their employment embodied in several collective bargaining agreements between Wheeling-Pittsburgh and the Union. The collective bargaining history of Wheeling-Pittsburgh and the Union is relevant to the resolution of the instant motion, and therefore will be reviewed in some detail.

Beginning in the late 1970s, Wheeling-Pittsburgh embarked upon a major capital investment program for modernization. From 1980 to 1985 the Company spent some 540 million dollars to meet customer demands for better quality and service, and to achieve cost reductions in an attempt to remain competitive against foreign and domestic producers. However, to achieve this modernization, the Company had to borrow heavily, and the obligation to pay interest and repay principal on these loans, combined with "significant 1982, 1983 and 1984 losses . . . substantially weakened the Corporation's financial position." (W-P Ex. 11, p. 16).

In 1980-81, in an attempt to weather these financial difficulties, Wheeling-Pittsburgh asked for certain concessions from the employees of the Allenport plant. This was the first time the Company approached the Union for concessions during the pendency of a collective bargaining agreement, and the parties successfully reached an accord.

In 1982, Wheeling-Pittsburgh asked the Union for further concessions in an attempt to deal with deteriorating conditions in the steel industry and within the Company itself. After consulting with its financial experts, who confirmed that Wheeling-Pittsburgh needed help, the Union negotiating committee obtained two rounds of concessions from its members employed at Wheeling-Pittsburgh, one in April of 1982, and the second in December of 1982. The second of these concessions was made as part of a new three and one-half year collective bargaining agreement which is now in effect and scheduled to expire on July 31, 1986. The concessions in that agreement reduced average labor costs initially to $18.60 per hour, with a schedule of restorations during the life of the agreement that would, by its end, restore average labor costs to the $25 level.³ By the end of 1984, there had been restorations raising the labor cost to $21.40.

In November of 1984, Wheeling-Pittsburgh advised the Union that its financial condition had worsened, and asked the Union to cancel the anticipated restorations above $21.40. After again seeking the advice of its financial advisors, who again confirmed Wheeling-Pittsburgh's distressed financial condition, the Union agreed to defer restorations indefinitely, subject to reimposition on short notice, thereby maintaining the labor cost at the current $21.40 level.

On January 15, 1985, Wheeling-Pittsburgh, stating that its financial position was weaker still, asked the Union for yet another concession. The Union took the position that it would make no further concessions until the Company first secured concessions from its lenders. In response, the Company issued a three-prong restructuring proposal (later to be known as the "three-legged stool") on March 8, 1985. This restructuring proposal sought concessions from three groups: the lenders, the Union and the shareholders. As the price for making their concessions, the lenders insisted that Wheeling-Pittsburgh pledge all of its current assets to secure the Company's old debt. The Union, on the advice of its financial consultants, insisted as a condition of further wage concessions that the Company not pledge its current assets as additional collateral for old debt. The Company was unable to accommodate the diametrically opposed demands of the Union and the lenders on this issue, and the March 8 restructuring proposal failed.

On April 16, 1985, Wheeling-Pittsburgh filed its Chapter 11 petition. On May 9, 1985, the Company made a new proposal to the Union seeking deeper labor concessions, the essentials of which were a reduction in overall wage costs to $15.20 per hour for a 5 year contract term. On May 31, 1985, the Company filed the instant motion to reject its collective bargaining agreements with the Union, and a hearing was held on June 17, 18, 20 and 21.

Discussion

Wheeling-Pittsburgh's motion for authorization to reject its collective bargaining agreements is governed by 11 U.S.C. § 1113.⁴ Section 1113 was added to Title 11 by the Bankruptcy Amendments and Federal Judgeship Act of 1984 in response to N.L.R.B. v. Bildisco and Bildisco, 465 U.S. 513, 104 S.Ct. 1188, 79 L.Ed.2d 482 (1984).⁵ Beginning with In re American Provision Co., 44 B.R. 907, 909 (Bankr.D.Minn.,1984), several courts have found that nine requirements must be met for court authorization to reject a collective bargaining agreement under § 1113. See In Re Cook United, Inc. et al, 50 B.R. 561, 563 (Bankr.N.D. Ohio, 1985); In re K & B Mounting, Inc., 50 B.R. 460, (N.D.Ind. 1985); In re Salt Creek Freightways, 47 B.R. 835, 838 (Bankr.D.Wyo.1985). Following the lead of these courts, the analysis may be broken down as follows:

Prior to the § 1113 Hearing

1. The debtor-in-possession must make a proposal to the Union to modify the collective bargaining agreement. 1113(b)(1)(A).

2. The debtor-in-possession then must meet at reasonable times with the Union until the date set for the § 1113 hearing. 1113(b)(2).

3. At these meetings, the debtor-in-possession must confer in good faith in attempting to reach mutually satisfactory modifications of such agreement. 1113(b)(2).

At the § 1113 Hearing

The court shall approve the application for rejection only if the court finds that:

4. The proposal was based on the most complete and reliable information available at the time of its creation. 1113(b)(1)(A).

5. The proposed modifications are necessary to permit the reorganization of the debtor-in-possession. 1113(b)(1)(A).

6. The proposed modifications assure that all creditors, the debtor-in-possession, and all of the affected parties are treated fairly and equitably. 1113(b)(1)(A).

7. The debtor-in-possession provided the Union with such relevant information as was necessary to evaluate the proposal. 1113(b)(1)(B).

8. The Union has refused to accept the proposal without good cause. 1113(c)(2) and

9. The balance of the equities clearly favors rejection of the collective bargaining agreements. 1113(c)(3).

The debtor-in-possession, as movant, bears the burden of persuasion by a preponderance of the evidence on all nine elements. In re Salt Creek Freightways, 47 B.R. at 838; In re American Provision Co., 44 B.R. at 909-10. However, the initial burden of going forward with the evidence does not in all instances rest on the debtor. As was stated in In re American Provision Co., 44 B.R. at 909-10:

In particular, as to elements 3, 7 and 8, I think that to a certain extent the burden of production of evidence should lie with the Union. As to element 7, I think that it is incumbent upon the debtor in the first instance to show what information it has provided to the Union. It is then incumbent upon the Union to produce evidence that the information provided was not the relevant information which was necessary for it to evaluate the proposal. Likewise as to element 3, once the debtor has shown that

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