Ionosphere Clubs, Inc., In re, Nos. 580

• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)
• Writing for the Court: Before MINER and TIMBERS, Circuit Judges, and SPRIZZO; TIMBERS; MINER
• Citation: 922 F.2d 984
• Parties: 136 L.R.R.M. (BNA) 2065, 59 USLW 2407, 118 Lab.Cas. P 10,548, Bankr. L. Rep. P 73,747 In re IONOSPHERE CLUBS, INC. and Eastern Airlines, Inc., Debtors. Martin R. SHUGRUE, Jr., As Chapter 11 Trustee for Eastern Airlines, Inc., Appellant, v. AIR LINE PILOTS ASSOCIATION, INTERNATIONAL, Appellee. ockets 90-5033, 90-5035.
• Decision Date: 21 December 1990
• Docket Number: 581,D,Nos. 580

Page 984

922 F.2d 984 136 L.R.R.M. (BNA) 2065, 59 USLW 2407,
118 Lab.Cas. P 10,548,
Bankr. L. Rep. P 73,747 In re IONOSPHERE CLUBS, INC. and Eastern Airlines, Inc., Debtors.
Martin R. SHUGRUE, Jr., As Chapter 11 Trustee for Eastern
Airlines, Inc., Appellant,
v.
AIR LINE PILOTS ASSOCIATION, INTERNATIONAL, Appellee. Nos. 580, 581, Dockets 90-5033, 90-5035. United States Court of Appeals,
Second Circuit. Argued Nov. 14, 1990.
Decided Dec. 21, 1990.

Page 986

Bruce R. Zirinsky, New York City (Laura M. Sillins, Matthew A. Cantor, and Weil, Gotshal & Manges, New York City, Joseph L. Manson, III, and Verner, Liipfert, Bernhard, McPherson & Hand, Washington, D.C., on the brief), for appellant Martin R. Shugrue, Jr., Chapter 11 Trustee for Eastern Airlines, Inc.

Richard M. Seltzer, New York City (James L. Linsey, Russell S. Hollander, Richard B. Miller, and Cohen, Weiss & Simon, New York City, on the brief), for appellee Air Line Pilots Ass'n, Intern.

Before MINER and TIMBERS, Circuit Judges, and SPRIZZO, District Judge, for the Southern District of New York, sitting by designation.

TIMBERS, Circuit Judge:

Appellant Martin R. Shugrue, Jr., Chapter 11 Trustee for Eastern Airlines, Inc. (Eastern), appeals from an order entered April 10, 1990 in the Southern District of New York, Robert W. Sweet, District Judge, reversing two orders of the bankruptcy court that stayed attempts by the Air Line Pilots Association, International (ALPA) to arbitrate a dispute arising out of their collective bargaining agreement with Eastern and to prosecute a lawsuit seeking to enjoin Eastern's practice of wet-leasing aircraft and crews as violative of the collective bargaining agreement.

On March 9, 1989, Eastern filed a petition for reorganization under Chapter 11 of the Bankruptcy Code. Subsequently, ALPA, which was engaged in a sympathy strike against Eastern, sought relief from the automatic stay to initiate an arbitration to determine whether labor protective provisions (LPPs) in the collective bargaining agreement had been triggered by Eastern's merger with Continental. The bankruptcy court, Burton R. Lifland, Chief Bankruptcy Judge, denied that petition. In re Ionosphere Clubs, Inc., 105 B.R. 765 (Bankr. S.D.N.Y.1989) (the LPP-decision).

After the strike began and after Eastern filed its petition for reorganization, Eastern entered into wet-lease contracts with Continental. Wet-leasing is a practice by which one airline leases aircraft and crews from another airline. ALPA commenced an action in the Southern District of Florida, seeking to enjoin this practice as violative of its collective bargaining agreement with Eastern. In response, Eastern commenced an adversary proceeding in the bankruptcy court to enjoin ALPA from prosecuting the Florida action. The bankruptcy court, Burton R. Lifland, Chief Bankruptcy Judge, held that ALPA's action was violative of the automatic stay and enjoined its prosecution pursuant to its powers under 11 U.S.C. Sec. 105(a) (1988). In re Ionosphere Clubs, Inc., 105 B.R. 773 (Bankr.S.D.N.Y.1989) (the wet-lease decision).

ALPA appealed both bankruptcy court orders to the district court pursuant to 28 U.S.C. Sec. 158(a) (1988). The district court reversed them both. The court held that 11 U.S.C. Sec. 1113(f) (1988) precludes the application of the automatic stay and the bankruptcy court's equitable powers to any proceeding brought by a union to enforce a collective bargaining agreement against a debtor, unless and until the debtor complies with the provisions of Sec. 1113, which regulates the termination or modification of collective bargaining agreements by a debtor in bankruptcy. In re Ionosphere Clubs, Inc., 114 B.R. 379 (S.D.N.Y.1990).

On appeal, Eastern contends that (1) Sec. 1113(f) of the Bankruptcy Code does not preclude application of the automatic stay

Page 987

provisions of Sec. 362 or of the bankruptcy court's equitable powers under Sec. 105 to ALPA's attempts to enforce the collective bargaining agreement outside the bankruptcy court; and (2) the bankruptcy court decisions should be reinstated.

For the reasons that follow, we affirm the district court's order as to the LPP-decision and reverse its order as to the wet-lease decision. We remand the case to the district court for further consideration.

I.

We shall summarize only those facts and prior proceedings believed necessary to an understanding of the issues raised on appeal.

This appeal involves two issues in a labor dispute between Eastern and ALPA. At all times relevant to this appeal, the relationship between the two parties was governed by a collective bargaining agreement dated February 23, 1986 and entered into pursuant to the Railway Labor Act (RLA), 45 U.S.C. Sec. 151 et seq. (1988).

On March 4, 1989, the International Association of Machinists and Aerospace Workers (IAM) began a primary strike against Eastern. Soon thereafter, ALPA and the Transportation Workers Union of America struck Eastern in sympathy with the IAM. On March 9, 1989, Eastern filed a petition for reorganization under Chapter 11 of the Bankruptcy Code in the Southern District of New York. On June 21, 1989, Eastern filed a motion in the bankruptcy court to reject the collective bargaining agreement pursuant to Sec. 1113. Eastern withdrew that motion on July 26, 1989. At the time the bankruptcy court reached the decisions under review on the instant appeal, no application under Sec. 1113 to terminate or modify the collective bargaining agreement was pending before it. Martin R. Shugrue, Jr. was appointed Trustee for Eastern on April 19, 1990.

(A)

The collective bargaining agreement contained LPPs designed to protect ALPA members in the event of a merger. The collective bargaining agreement provided that disputes arising from it would be submitted to arbitration and it set forth a procedure governing that process. Eastern was sold to Texas Air Corporation (Texas Air) within days after the collective bargaining agreement became operative. After Eastern's acquisition by Texas Air, a dispute arose as to the operation of the LPPs. On June 10, 1986, Eastern commenced an action in the Southern District of Florida, seeking a declaration that the collective bargaining agreement was invalid. That contention was rejected and Eastern was ordered to arbitrate the dispute. Eastern Air Lines, Inc. v. Air Line Pilots Ass'n, Int'l, 670 F.Supp. 947 (S.D.Fla.1987), aff'd, 861 F.2d 1546 (11 Cir.1988).

On August 6, 1986, pursuant to the provisions of the collective bargaining agreement, ALPA filed a grievance with the System Board of Adjustments, the body established to hear and determine grievances based on disputes concerning the collective bargaining agreement. On March 8, 1989, the arbitration panel ruled in favor of ALPA. It concluded that the LPPs provided that, in the event of a merger, seniority lists were to be merged. The panel did not decide whether a merger had taken place that would have triggered the LPPs. The decision was not signed by all the panel members until the next day, approximately seven minutes after Eastern filed its bankruptcy petition.

On July 21, 1989, ALPA filed a motion in the bankruptcy court, seeking a determination that the arbitration decision became effective prior to Eastern's Chapter 11 filing and, thus, was not affected by the automatic stay, or, in the alternative, it sought relief from the automatic stay to implement the arbitration decision. ALPA supplemented its motion requesting relief from the automatic stay with a request to commence a second arbitration to determine whether Eastern and Continental had merged, thus triggering the LPPs. Eastern did not oppose the request for relief from the stay to implement the first arbitration decision, but did oppose the supplemental request to commence a second arbitration.

Page 988

The bankruptcy court lifted the stay for the limited purpose of formally issuing the arbitration decision interpreting the LPPs, but declined to lift the stay for the purpose of allowing ALPA to initiate an arbitration to determine whether a merger had taken place. In re Ionosphere Clubs, Inc., supra, 105 B.R. 765. The court reasoned that issues raised in the arbitration would duplicate efforts being made by the examiner it had appointed. Id. at 771.

(B)

Wet-leasing refers to the practice of one airline leasing aircraft and crews from another airline. The collective bargaining agreement prohibited Eastern from engaging in this practice. It required Eastern to employ ALPA pilots on the Eastern pilot's system seniority list to perform its flying. In August 1989, since its pilots were on strike and replacement pilots were still being trained, Eastern entered into wet-lease contracts with Continental.

On September 1, 1989, ALPA commenced an action in the Southern District of Florida (the Florida action), seeking to enjoin the wet-leasing as violative of the collective bargaining agreement and of the RLA. The district court set the case on an expedited discovery schedule. On September 25, 1989, Eastern commenced an adversary proceeding in the bankruptcy court, seeking to enjoin ALPA from prosecuting the Florida action. In its complaint, Eastern alleged that its wet-lease contracts were reasonably necessary to its continued operation during the strike.

The bankruptcy court held that the Florida action violated the provisions of the automatic stay, specifically, 11 U.S.C. Sec. 362(a)(3) (1988), which provides for a stay of "any act ... to exercise control over property of the estate." In re Ionosphere Clubs, supra, 105 B.R. at 779. The court determined that Eastern's actions were "reasonably necessary" to its continued operation during the strike and were protected under the doctrine announced in Brotherhood of Ry. & S.S. Clerks v. Florida East Coast Ry., 384 U.S. 238, 248, 86 S.Ct. 1420, 1425, 16 L.Ed.2d 501 (1966). In re Ionosphere Clubs, supra, 105 B.R. at 780. Finally, the bankruptcy court...