In re Wheeling-Pittsburgh Steel Corp., Civ. A. No. 85-1660.
| Decision Date | 28 August 1985 |
| Docket Number | Civ. A. No. 85-1660. |
| Citation | 52 BR 997 |
| Parties | In re WHEELING-PITTSBURGH STEEL CORPORATION, Debtor-in-Possession. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
John McLean, M. Bruce McCullough, Buchanan, Ingersoll, Rodewald, Kyle & Buerger, Pittsburgh, Pa., for Wheeling-Pittsburgh.
Roger J. Lerner, Washington, D.C., for Pension Ben. Guar. Corp.
George Raynovich, Jr., Pittsburgh, Pa., for Wheeling-Pittsburgh.
Robert G. Sable, Pittsburgh, Pa., and Barbara Kaplan, New York City, for Official Committee of Unsecured Creditors.
Michael J. Yurcheshen, Pittsburgh, Pa., and Harvey R. Miller, New York City, for Prudential Life Ins. Co., et al.
Joel M. Walker, Pittsburgh, Pa., and Warren R. Stern, New York City, for principal banks.
Paul Whitehead, Carl Frankel, Garry Sasso, Michael H. Gottesman, Robert M. Weinberg, Gary L. Sasso, Bredhoff & Kaiser, Washington, D.C., and Claude Montgomery, Booth Marcus & Pierce, New York City, for UWSA.
In 1960, Justice Douglas wrote:
A collective bargaining agreement is an effort to erect a system of industrial self-government. When most parties enter into contractual relationship, they do so voluntarily, in the sense that there is no real compulsion to deal with one another, as opposed to dealing with other parties. This is not true of the labor agreement. The choice is generally not between entering or refusing to enter into a relationship, for that in all probability preexists the negotiations. Rather, it is between having the relationship governed by an agreed-upon rule of law or leaving each and every matter subject to a temporary resolution dependent solely upon the strength, at any given moment, of the contending forces.
In 1984, the Supreme Court in NLRB v. Bildisco and Bildisco, 465 U.S. 513, 104 S.Ct. 1188, 79 L.Ed.2d 482 (1984), held that collective bargaining agreements may be rejected under the provisions of the then-existing bankruptcy laws if a Chapter 11 debtor can establish that the agreement is burdensome to the estate and that the balance of the equities favors rejection.
Disappointment was the understandable reaction of organized labor to the Bildisco decision. Congress responded by adding Section 1113 to the Bankruptcy Code by P.L. 98-353 for cases commenced on and after July 10, 1984.
Section 1113 provides in relevant part:
On May 31, 1985, Wheeling-Pittsburgh Steel Corporation (hereinafter "Wheeling-Pittsburgh"), the debtor-in-possession in this case, sought authorization in the bankruptcy court of this district to reject its collective bargaining agreements with the United Steelworkers of America, AFL-CIO-CLC (hereinafter "USWA"), agreements entered into by Wheeling-Pittsburgh and USWA in January 1983 and scheduled by their terms to expire on July 31, 1986.
The bankruptcy court held that Wheeling-Pittsburgh had established its entitlement under Section 1113 to reject the agreement, and entered an order on July 17, 1985 authorizing Wheeling-Pittsburgh to do so. USWA filed an appeal to this Court from that order. After denying a Motion to Stay filed by USWA, we established an expedited briefing schedule relative to its appeal.
The proper standard of this Court's review is Bankruptcy Rule 8013 which provides:
On an appeal the district court . . . may affirm, modify, or reverse a bankruptcy court\'s judgment, order or decree, or remand with instructions for further proceedings. Findings of fact shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of the witnesses.
Therefore, the standard of review of facts required by the bankruptcy rules is the clear erroneous test and the Court of Appeals for the Third Circuit has so declared in the case of In Re Morrissey, 717 F.2d 100 (3d Cir.1983).
In the instant case, Bankruptcy Judge Bentz made his analysis of the nine requirements necessary for rejection of a collective bargaining agreement as imposed by § 1113 of the Code.
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.
Judge Bentz concluded that the burden of persuasion is on the debtor as to all nine requirements. He then applied these requirements to the facts that he found to exist in the instant case and concluded that the debtor in possession had met its burden here and that the application for rejection of the collective bargaining agreement should be approved.
Wheeling-Pittsburgh is willing to adopt the opinion of Bankruptcy Judge Bentz without supplementation and not surprisingly contend that he reached "a correct conclusion." USWA advances a plethora of reasons why the Bankruptcy Court misunderstood and misapplied the applicable legal standards and misconceived the nature and quality of the proof necessary to meet them.
Contractual obligations should be deemed binding and not subject to unilateral termination or capable of being set aside on slight pretense of financial inability. However, in a Chapter 11 setting successful rehabilitation of debtors may require a rejection of agreements entered into by employer-employee parties. The eye of the beholder must focus in on the fundamental fact of economic life — the purpose of reorganization for a debtor in bankruptcy is to prevent that debtor from going into liquidation with an attendant loss of jobs and possible misuse of economic resources. Surely, the intent of Congress when it enacted into law Section 1113 of the Bankruptcy Code was not of a contrary nature.
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 further and deeper labor concessions, the main items being a reduction in overall wage costs to $15.20 per hour, as compared to $21.40 per hour at the end of 1984, and a five-year contract term. On May 31, 1985, Wheeling-Pittsburgh filed a motion to reject the collective bargaining agreements with USWA and a hearing lasting four days was held during mid-June.
USWA in this appeal mounts a very serious challenge to the Bankruptcy Court's holding that the modifications to the collective bargaining agreements proposed by Wheeling-Pittsburgh were "necessary to permit the reorganization of the debtor." The Company put into evidence its new contract proposal, together with the Company's financial projections on which it was based and assertions, conclusory in nature, from three key officials and a financial expert that the labor concessions were necessary for the Company to reorganize. The Union responded by evidence that it was not necessary to modify the collective bargaining agreement at all in order to permit the reorganization of Wheeling-Pittsburgh, since the agreement would expire in approximately one year on July 31, 1986. In addition, the Union asserts that...
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