Mile Hi Metal Systems, Inc., In re

• Decision Date: 20 March 1990
• Docket Number: No. 86-2912,86-2912
• Citation: 899 F.2d 887
• Parties: 133 L.R.R.M. (BNA) 2927, 58 USLW 2575, 114 Lab.Cas. P 12,044, 22 Collier Bankr.Cas.2d 611, 20 Bankr.Ct.Dec. 505 In re MILE HI METAL SYSTEMS, INC., Debtor. SHEET METAL WORKERS' INTERNATIONAL ASSOCIATION, LOCAL 9, Appellee, v. MILE HI METAL SYSTEMS, INC., Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 887

899 F.2d 887

133 L.R.R.M. (BNA) 2927, 58 USLW 2575,

114 Lab.Cas. P 12,044,

22 Collier Bankr.Cas.2d 611, 20 Bankr.Ct.Dec. 505

In re MILE HI METAL SYSTEMS, INC., Debtor SHEET METAL WORKERS' INTERNATIONAL ASSOCIATION, LOCAL 9, Appellee, v. MILE HI METAL SYSTEMS, INC., Appellant.

No. 86-2912.

United States Court of Appeals Tenth Circuit.

March 20, 1990.

Robert M. McConnell, Collins & McConnell (formerly of Holland & Hart), Colorado Springs, Colo. (Robert M. Duitch, Duitch & Johnson, P.C., Colorado Springs, Colo., with him on the briefs), for appellant, Mile Hi Metal Systems, Inc.

Ellen M. Kelman (Walter C. Brauer, III, with her on the brief), Brauer & Buescher, P.C., Denver, Colo., for appellee, Sheet Metal Workers' Intern. Ass'n, Local No. 9.

Before SEYMOUR, ANDERSON, and BRORBY, Circuit Judges.

STEPHEN H. ANDERSON, Circuit Judge.

This appeal requires us to interpret for the first time 11 U.S.C. Sec. 1113 ("section 1113"), which sets forth the procedures and conditions under which a debtor-in-possession or trustee may reject a collective bargaining agreement. At the heart of this matter is the requirement in section 1113(b)(1)(A) that the debtor make a proposal which sets out:

"those necessary modifications in the employees [sic] benefits and protections that are necessary to permit the reorganization of the debtor and assures that all creditors, the debtor and all of the affected parties are treated fairly and equitably."

The district court ruled that in no event may the proposed modifications violate federal labor laws, and that for a debtor's motion to reject a collective bargaining agreement to be granted the debtor must propose only modifications to the agreement which are absolutely necessary for it to reorganize. Because we disagree on both counts, we reverse the judgment of the district court and remand the case for further proceedings.

I. FACTUAL AND PROCEDURAL BACKGROUND

On April 12, 1985, appellant-debtor Mile Hi Metal Systems, Inc., filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code. Thereafter, members of appellee Sheet Metal Workers' International Association, Local No. 9 ("the Union") walked off the job sites and Mile Hi hired non-Union replacement workers. On June 10, Mile Hi filed a motion to reject its collective bargaining agreement with the Union.

Attached to the motion was a copy of a letter which Mile Hi had sent to the Union twelve days earlier, setting out proposed modifications in the collective bargaining agreement. Two of the proposed modifications, plus one subsequent oral statement by a Mile Hi representative, are relevant to this appeal. They are as follows:

"1. That Article 5, paragraph 5-1 [of the collective bargaining agreement] be modified to reflect that the employer will be permitted to hire Non-Union permanent employees as replacements for strikers without the requirement that those employees become Union members except and unless such employees desire membership in the Union.

....

3. That Article 4, paragraph 4-4 be modified to reflect that a Steward will only be required if there are three (3) or more Union employees on any job."

R.Vol. I at 25-26 (emphasis in original). During the hearing on the motion, one of No meetings or negotiations between the parties took place until after Mile Hi applied for authorization to reject the agreement. The parties met once before the hearing, with no success. Shortly after the hearing commenced, the bankruptcy court adjourned the proceedings to allow further negotiation. No result came from these meetings, either. The Union's position in the negotiating sessions was that some of the proposed modifications were illegal as a matter of labor law, and that it would consider no part of the proposal until the offending provisions were eliminated. Mile Hi's representatives insisted upon the legality of the provisions and refused to delete them.

                Mile Hi's owners stated that the non-Union replacement workers would be paid "at whatever rate [Mile Hi] could hire them rather than at the contract rate."    R.Vol. IV at 38
                

The hearing resumed, and Mile Hi's motion was granted. The bankruptcy court did not consider the Union's allegations that some of the modifications were contrary to labor law. Instead, the court stated:

"[T]he Union ... has alleged that there were illegal provisions in the hiring of non-Union replacements and the Court finds that it has no jurisdiction or authority to decide that issue but finds that it is not a basis to reject the proposal in total [sic] and that the Union should have, in good faith, accepted all other provisions so that there could have been a determination of whether or not that specific proposal was acceptable."

Order on Debtor's Motion to Reject Collective Bargaining Agreement, June 20, 1985, p. 3.

The district court reversed, declaring the bankruptcy court's refusal to consider the Union's allegations to be an error of law. See In re Mile Hi Metal Sys., Inc., 67 B.R. 114, 117 (D.Colo.1986). The court went on to find that the disputed provisions were not "necessary," as section 1113(b)(1)(A) requires, because they exceeded the absolute minimum needed for Mile Hi's reorganization. Id. at 118. In addition, the court found that the proposed wage differential would have been an unfair labor practice, and consequently that the proposal did not satisfy the requirement in section 1113(b)(1)(A) of treating the Union "fairly and equitably," and justified the Union in refusing even to consider it. Id. Our reading of the statute leads us to different conclusions. Accordingly, we reverse the district court, vacate the order of the bankruptcy court, and remand for further proceedings. ¹

II. DISCUSSION

Section 1113 was passed in response to the Supreme Court's decision in NLRB v. Bildisco & Bildisco, 465 U.S. 513, 104 S.Ct. 1188, 79 L.Ed.2d 482 (1984), which permitted a debtor to reject a collective bargaining "(b)(1) Subsequent to filing a petition and prior to filing an application seeking rejection of a collective bargaining agreement, the debtor in possession ... shall--

                agreement unilaterally.  Congress agreed that a debtor should be able to reject the agreement, but not that it should be able to do so on its own. 2   Section 1113 provides in pertinent part
                

(A) make a proposal to the authorized representative of the employees covered by such agreement ... which provides for those necessary modifications in the employees [sic] benefits and protections that are necessary to permit the reorganization of the debtor and assures that all creditors, the debtor and all of the affected parties are treated fairly and equitably;

....

(2) During the period beginning on the date of the making of a proposal provided for in paragraph (1) and ending on the date of the hearing provided for in subsection (d)(1), the [debtor-in-possession] shall meet, at reasonable times, with the authorized representative to confer in good faith in attempting to reach mutually satisfactory modifications of such agreement.

(c) The court shall approve an application for rejection of a collective bargaining agreement only if the court finds that--

(1) the [debtor-in-possession] has, prior to the hearing, made a proposal that fulfills the requirements of subsection (b)(1);

(2) the authorized representative of the employees has refused to accept such proposal without good cause; and

(3) the balance of the equities clearly favors rejection of such agreement."

11 U.S.C. Sec. 1113(b)(1)(A), (b)(2), (c).

The legislative history of section 1113, which has been explored in detail elsewhere, see, e.g., In re Royal Composing Room, Inc., 848 F.2d 345, 352-54 (2d Cir.1988) (Feinberg, C.J., dissenting), cert. denied, --- U.S. ----, 109 S.Ct. 1529, 103 L.Ed.2d 834 (1989); Rosenberg, Bankruptcy and the Collective Bargaining Agreement--A Brief Lesson in the Use of the Constitutional System of Checks and Balances, 58 Am.Bankr.L.J. 293, 311-21 (1984), consists of little more than self-serving statements by opposing partisans. No committee reports were issued on the statute, apparently because no agreement on content could be reached. See In re Carey Transp., Inc., 50 B.R. 203, 206 (Bankr.S.D.N.Y.1985), aff'd sub nom. Truck Drivers Local 807 v. Carey Transp., Inc., 816 F.2d 82 (2d Cir.1987). When legislative history is "scant and capable of differing interpretations," we are hesitant to consider it "a reliable indicator of [Congressional] intent." Miller v. Commissioner, 836 F.2d 1274, 1282-83 (10th Cir.1988); see also Garcia v. United States, 469 U.S. 70, 76, 105 S.Ct. 479, 483, 83 L.Ed.2d 472 (1984). We therefore confine our analysis largely to the words of the statute itself, taking into account other judicial interpretations. See In re Landmark Hotel & Casino, Inc., 78 B.R. 575, 583 (Bankr. 9th Cir.1987), appeal dismissed, 872 F.2d 857 (9th Cir.1989); Cosetti & Kirshenbaum, supra note 2, at 193.

A. Effect of Proposals Which Allegedly Violate Labor Law

The Bankruptcy Code cuts across a broad spectrum of other areas of law in order to afford a debtor the opportunity to reorganize. The most pertinent example is section 1113 itself, which by providing for the rejection of collective bargaining agreements authorizes what would otherwise be a violation of 29 U.S.C. Sec. 158(d). We recognize the strong national policies which protect workers from unfair labor practices and ensure the enforceability of collective bargaining agreements. See 29 U.S.C. Sec. 158; see also International Bhd. of Teamsters v. IML Freight, Inc., 789 F.2d 1460, 1462 (10th Cir.1986). But Chapter 11 of the Bankruptcy Code reflects an equally strong public policy "to prevent a debtor from going into liquidation, with an attendant loss of jobs and possible misuse of economic resources." NLRB v. Bildisco & Bildisco, 465 U.S. at 528, 104 S.Ct. at 1197.

"[W]hen an employer is in Chapter 11, the normal rules of labor law...