Shopmen's Local Union No. 455, Intern. Ass'n of Bridge, Structural and Ornamental Iron Workers, AFL-CIO v. Kevin Steel Products, Inc.

• Decision Date: 24 July 1975
• Docket Number: Nos. 581,D,811,s. 581
• Citation: 519 F.2d 698,89 LRRM 3133
• Parties: 89 L.R.R.M. (BNA) 3133, 77 Lab.Cas. P 11,040 SHOPMEN'S LOCAL UNION NO. 455, INTERNATIONAL ASSOCIATION OF BRIDGE, STRUCTURAL AND ORNAMENTAL IRON WORKERS, A.F.L.-C.I.O., Appellee, and National Labor Relations Board, Intervenor, v. KEVIN STEEL PRODUCTS, INC., Appellant. NATIONAL LABOR RELATIONS BOARD, Petitioner, v. KEVIN STEEL PRODUCTS, INC., Respondent. ockets 74-1872, 74-2154.
• Court: U.S. Court of Appeals — Second Circuit

Page 698

519 F.2d 698

89 L.R.R.M. (BNA) 3133, 77 Lab.Cas. P 11,040

SHOPMEN'S LOCAL UNION NO. 455, INTERNATIONAL ASSOCIATION OF

BRIDGE, STRUCTURAL AND ORNAMENTAL IRON WORKERS, A.F.L.-C.I.O., Appellee, and National Labor Relations Board, Intervenor, v. KEVIN STEEL PRODUCTS, INC., Appellant.

NATIONAL LABOR RELATIONS BOARD, Petitioner, v. KEVIN STEEL PRODUCTS, INC., Respondent.

Nos. 581, 811, Dockets 74-1872, 74-2154.

United States Court of Appeals, Second Circuit.

Argued June 11, 1975.

Decided July 24, 1975.

Mitchel B. Craner, New York City (Guazzo, Silagi & Craner, P. C., Stephen E. Klausner, New York City, on the brief), for appellant-respondent Kevin Steel Products, Inc.

Belle Harper, New York City (Sipser, Weinstock, Harper & Dorn, I. Philip Sipser, Jerome Tauber, New York City, on the brief), for appellee Shopmen's Local Union No. 455.

Peter J. Carre, Washington, D. C. (Peter G. Nash, Gen. Counsel, John S. Irving, Deputy Gen. Counsel, Patrick Hardin, Associate Gen. Counsel, Elliott Moore, Deputy Associate Gen. Counsel, Abigail Cooley, Asst. Gen. Counsel for Special Litigation; Sandra R. McCandless Atty., on the brief), for intervenor-petitioner N.L.R.B.

Before FEINBERG, OAKES and VAN GRAAFEILAND, Circuit Judges.

FEINBERG, Circuit Judge:

This case squarely presents to an appellate court, apparently for the first time, the question whether section 313(1) of the Bankruptcy Act allows rejection of a collective bargaining agreement as an executory contract. We conclude that the answer is yes, despite the position of the National Labor Relations Board that there is a direct conflict between the Bankruptcy Act and the National Labor Relations Act in which the Labor Act must prevail in order to preserve 'industrial peace.' ¹ We view the matter in less apocalyptic terms and believe that, in the case before us, the effect of the two statutes can be reconciled.

I

Kevin Steel Products, Inc., a steel fabricator and erector located in West Haverstraw, New York, and a debtor-in-possession (the debtor) under Chapter XI of the Bankruptcy Act, appeals from a decision of Judge Whitman Knapp in the United States District Court for the Southern District of New York that the court had no power to allow the debtor to reject a collective bargaining agreement with appellee Shopmen's Local Union No. 455, International Association of Bridge, Structural and Ornamental Iron Workers, A.F.L.-C.I.O., 381 F.Supp. 336 (1974). Kevin Steel had filed a petition for an arrangement under Chapter XI in September 1973, and Bankruptcy Judge Howard Schwartzberg had authorized Kevin Steel as debtor-in-possession to operate the business under the court's control. ² Thereafter, the debtor petitioned the bankruptcy court for permission to reject as an onerous executory contract the collective bargaining agreement with the union. ³ In March 1974, the bankruptcy judge granted the petition. The union appealed, and in August Judge Knapp reversed the decision of the bankruptcy judge. This appeal by the debtor followed.

While the parties were skirmishing in the bankruptcy court, another proceeding was in progress before the National Labor Relations Board, growing out of a labor dispute between Kevin Steel and the union. The two had been in a collective bargaining relationship since 1968 when a two-year contract was signed. They then entered into a three-year agreement for the period July 1, 1970 to June 30, 1973. There were about 15 employees in the unit in early 1973. The relationship deteriorated, culminating in a charge filed by the union with the Labor Board in June 1973, alleging that the company had violated sections 8(a)(1), (3) and (5) of the National Labor Relations Act by offering an employee an inducement to abandon the union, by laying off and subsequently terminating employees because of a shop steward's insistence on strict enforcement of the collective bargaining agreement, and by refusing, on and after June 1, 1973, to sign a document embodying a new agreement between the union and the company. In July 1973, a complaint issued; in November, the Administrative Law Judge found that the violations had indeed been committed, and in March 1974, the Board affirmed his decision. 209 N.L.R.B. No. 80. The Board ordered Kevin Steel, 'its officers, agents, successors, and assigns' to cease and desist from various practices and, most significantly for us, required the company to execute the contract submitted by the union in June 1973, giving it retroactive effect from July 1, 1973; the Board also ordered Kevin Steel to make the employees whole for any loss of wages or other benefits suffered as a result of its failure to sign the agreement and to offer reinstatement to the unlawfully discharged employees. There was no compliance with the Board's decision, and the Board applied to this court for enforcement of its order.

In October 1974, the parties in the two proceedings filed a joint motion for consolidation of the appeal of the debtor (Docket No. 74-2154) and the Board's petition for enforcement (Docket No. 74-1872). This was granted, pursuant to an agreement that the Board's decision and order in the latter proceeding is part of the record on appeal in the former and that:

[T]he Company agreed to the entry of a consent judgment by this Court enforcing the Board's order with respect to the violations of Section 8(a)(1) and (3) of the Act and stipulated that it would not contest the Board's findings of fact and conclusions of law with respect to the violation of Section 8(a)(5). Insofar as the effect of enforcement in Docket No. 74-1872 of the Board's order remedying the Section 8(a)(5) violation is dependent upon the outcome of the Company's appeal in Docket No. 74-2154, the bankruptcy proceeding, the Board and the Company agreed that enforcement of the Section 8(a)(5) portion of the Board's order be held in abeyance pending the outcome of said bankruptcy proceeding.

Thus, on the debtor's appeal, the Board and the union join to support Judge Knapp's order, which refused to allow the debtor to reject the contract that the Labor Board had ordered Kevin Steel and its successors to sign. The basis of the judge's ruling was that the power of 'the Bankruptcy Court [to] relieve a debtor from the burdens of any executory contract' did not apply to collective bargaining agreements. 381 F.Supp. at 338. To the validity of this proposition we now turn.

II

Appellant debtor argues on appeal that the district court erred in its constricted reading of the Bankruptcy Act. The debtor relies on the language of section 313(1) of that Act, 11 U.S.C. Sec. 713(1), the unbroken string of cases supporting the debtor's view, and evidence of congressional intent. Section 313(1) provides that:

Upon the filing of a petition, the court may, in addition to the jurisdiction, powers, and duties conferred and imposed upon it by this chapter----

(1) permit the rejection of executory contracts of the debtor, upon notice to the parties to such contracts and to such other parties in interest as the court may designate.

The section is phrased in broad terms. The debtor cites the leading text, which points out that the language contains 'no restriction on the type of executory contract that may be rejected. The power in that respect is therefore broader in a Chapter XI case than in a Chapter X case, since an executory contract in the public authority cannot be rejected under Chapter X.' (Footnotes omitted.) 8 Collier on Bankruptcy p3.15 (14th ed. rev. 1975). The debtor calls to our attention prior decisions, all of which construe this, or similar, sections of the Bankruptcy Act authorizing rejection of executory contracts ⁴ as applying to collective bargaining agreements. E. g., Carpenters Local 2746 v. Turney Wood Products Inc., 289 F.Supp. 143, 147-50 (W.D.Ark.1968); In re Overseas National Airways, Inc., 238 F.Supp. 359, 361 (E.D.N.Y.1965); In re Klaber Bros., Inc., 173 F.Supp. 83 (S.D.N.Y.1959); In re Public Ledger, Inc., 63 F.Supp. 1008 (E.D.Pa.1945), rev'd in part, 161 F.2d 762 (3d Cir. 1947). And we are told that the unlimited scope of the statutory language has been relied on by the courts. E. g., Carpenters Local 2746, supra, 289 F.Supp. at 147; In re Klaber Bros., Inc., supra, 173 F.Supp. at 85.

As to congressional intent, the debtor argues that Congress certainly knew how to carve labor agreements out of a general grant of power to reject executory contracts. This is precisely what Congress did in section 77(n) of the Bankruptcy Act, 11 U.S.C. Sec. 205(n), which specifically prohibits a bankruptcy court or trustee from changing wages or working conditions of railroad employees except in the manner prescribed in the Railway Labor Act, 45 U.S.C. Sec. 151 et seq. ⁵ See In re Overseas National Airways, supra. The failure of Congress similarly to limit section 313(1), according to the debtor, shows a clear intention to include labor contracts within its scope.

Appellees respond to these arguments as follows: The precedents are scanty and, in any event, are not binding because 'the issue of whether the Bankruptcy Act confers the power to reject collective bargaining agreements has never been presented to the appellate courts.' ⁶ Moreover, the broad language of the statute is not controlling; it must be interpreted in light of 'other directly conflicting statutory provisions,' ⁷ the enormous difference between a labor agreement and an ordinary commercial contract, congressional intent in enacting the Bankruptcy Act and the Labor Act, and considerations of policy, all of which require a conclusion that bankruptcy courts do not possess the power to set aside collective bargaining agreements.

With regard to the precedents, appellees argue not only that they are few and not controlling, but also that they are wrongly decided because they rely on a literal reading of section 313(1) or analogous sections. This is a mistake, we are told, because such a construction...