Unimet Corp., In re
| Decision Date | 22 March 1988 |
| Docket Number | No. 87-3211,87-3211 |
| Parties | 127 L.R.R.M. (BNA) 3139, 56 USLW 2560, 108 Lab.Cas. P 10,384, 18 Collier Bankr.Cas.2d 694, 17 Bankr.Ct.Dec. 726, Bankr. L. Rep. P 72,227, 9 Employee Benefits Ca 1689 In re UNIMET CORPORATION, Debtor. UNITED STEELWORKERS OF AMERICA, Plaintiff-Appellant, v. UNIMET CORPORATION, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Sixth Circuit |
James S. Gwin, Gutierrez, Mackey & Gwin Co., Canton, Ohio, Paul Whitehead (argued), United Steelworkers of America, Pittsburgh, Pa., for plaintiff-appellant.
Lee D. Powar, Mark E. Staib (argued), Harry D. Mercer, Eric D. Fingerhut, Harlin, Loeser, Freedheim, Dean & Wellman Co., Cleveland, Ohio, David M. Hunter, Jeffrey T. Heintz, Brouse & McDowell, J. Bruce Hunsicker, Akron, Ohio, for defendant-appellee.
Before MILBURN and GUY, Circuit Judges, and CONTIE, Senior Circuit Judge.
Plaintiff-appellant United Steelworkers of America ("United Steelworkers" or "Union") appeals from the post-judgment order of the district court holding that defendant-appellee Unimet Corporation ("Unimet"), the debtor-in-possession under Chapter 11 of the Bankruptcy Code, was not required to pay insurance premiums for retiree benefits under the terms of a collective bargaining agreement. For the reasons that follow, we reverse the judgment of the district court to the extent that it held that 11 U.S.C. Sec. 1113's protection does not apply to retirees covered by provisions in a collective bargaining agreement.
Unimet formerly operated a manufacturing plant in Canton, Ohio. On November 7, 1983, Unimet entered into a three-year collective bargaining agreement with United Steelworkers. The agreement required Unimet to pay one-half of the premiums for certain retirees' health insurance and the full amount of the premium for all retirees' life insurance.
However, on May 11, 1984, all Unimet employees at the Canton facility were laid off when the company closed its plant. Thereafter, on March 8, 1985, Unimet sought protection under Chapter 11 of the Bankruptcy Code. At that time, Unimet's only remaining obligation under the collective bargaining agreement was the payment of insurance premiums on behalf of the retirees.
After Unimet closed the Canton facility, it informed United Steelworkers that it wished to eliminate the health and life insurance benefits for retirees. The union rejected this proposal, but advised Unimet that it was willing to consider any further modifications the company wished to propose. Unimet responded by filing a motion in the bankruptcy court to reject the collective bargaining agreement pursuant to 11 U.S.C. Sec. 1113.
On August 6, 1985, the bankruptcy court issued an order denying Unimet's motion to reject the collective bargaining agreement because it failed to carry its burden of proof with regard to the factors enumerated in 11 U.S.C. Sec. 1113(b). No appeal was taken from that order.
Nevertheless, Unimet continued to advocate the position that the Bankruptcy Code did not authorize payment of the insurance premiums required by the collective bargaining agreement. In order to protect itself from the possibility that other creditors would challenge an attempt to pay the premiums required by the unrejected collective bargaining agreement, Unimet filed an application to pay the premiums as administrative expenses pursuant to 11 U.S.C. Sec. 503(b). It then proceeded to, in effect, argue against the motion by advocating the position that payment of retiree insurance premiums could not be characterized as an administrative expense. In response, United Steelworkers argued that because section 1113 applies to all provisions of a collective bargaining agreement, Unimet's failure to carry its burden of proof under subsection 1113(b) rendered it liable for premium payments under the terms of the contract.
In an order entered on September 27, 1985, the bankruptcy court adopted the position advanced by Unimet. As an initial matter, the bankruptcy court retreated After concluding that section 1113 did not provide authority for the continuation of retiree insurance benefits, the bankruptcy court considered whether these expenses were properly characterized as administrative expenses under 11 U.S.C. Sec. 503. Because it concluded that this obligation did not arise after the filing of the petition and was not necessary for the preservation of the estate, the bankruptcy court held that the insurance premium payments were not expenses of administration. Accordingly, Unimet was denied authorization to make the premium payments as required by the collective bargaining agreement.
from the premise upon which its August 6, 1985, judgment was based. Rather than adhering to its initial decision that Unimet was required to comply with the collective bargaining agreement because the requirements of 11 U.S.C. Sec. 1113(b) had not been satisfied, the bankruptcy court concluded that section 1113 does not protect the collectively bargained rights of retirees. To support this conclusion, the bankruptcy court reasoned that section 1113 speaks in terms of "employees." Because retirees are not "employees" for the purpose of section 8 of the National Labor Relations Act, see Allied Chemical & Alkali Workers of America, Local Union No. 1 v. Pittsburgh Plate Glass Co., 404 U.S. 157, 92 S.Ct. 383, 30 L.Ed.2d 341 (1971), the bankruptcy court concluded that they should not be considered "employees" for the purpose of analysis under 11 U.S.C. Sec. 1113
United Steelworkers then appealed to the district court, which reversed the judgment of the bankruptcy court on November 18, 1986. The basis for the district court's decision was its belief that H.R. 5490 amended section 1113(f) to explicitly provide protection for retirees. 1 H.R. 5490, however, was never enacted into law.
Accordingly, Unimet filed a motion to reconsider the district court's November 18, 1986, judgment. Unimet pointed out that H.R. 5490, although passed by the House of Representatives, had never been passed by the Senate. It also pointed to other legislative activity which it contended supported the conclusion that section 1113 does not apply to retirees.
On January 21, 1987, the district court entered a post-judgment order adopting Unimet's position. It affirmed the judgment of the bankruptcy court that 11 U.S.C. Sec. 1113 does not apply to retirees and that the insurance premiums were not properly characterized as administrative expenses. It is from this judgment that United Steelworkers appeals, arguing that 11 U.S.C. Sec. 1113 applies to retirees, and that subsequent legislative activity should have no bearing on this court's decision.
A discussion of 11 U.S.C. Sec. 1113 is not complete without consideration of the circumstances precipitating its enactment. In 1984, the Supreme Court decided NLRB v. Bildisco & Bildisco, 465 U.S. 513, 104 S.Ct. 1188, 79 L.Ed.2d 482 (1984). Although the Court unanimously agreed that an unexpired collective bargaining agreement is an executory contract which could be rejected pursuant to 11 U.S.C. Sec. 365(a), it split 5-4 on the issue of whether the debtor-in-possession could be found guilty of an unfair labor practice if it rejected the agreement prior to court approval. The majority concluded that the imposition of such sanctions would deprive the debtor-in-possession of the flexibility contemplated by the Bankruptcy Code.
[T]he Board is precluded from, in effect, enforcing the terms of the collective-bargaining agreement by filing unfair labor practice charges against the debtor-in- Bildisco, 465 U.S. at 532, 104 S.Ct. at 1199 (citation omitted).
possession for violating Sec. 8(d) of the NLRA. Though the Board's action is nominally one to enforce Sec. 8(d) of that Act, the practical effect of the enforcement action would be to require adherence to the terms of the collective bargaining agreement. But the filing of the petition in bankruptcy means that the collective-bargaining agreement is no longer immediately enforceable, and may never be enforceable again. Consequently, Board enforcement of a claimed violation of Sec. 8(d) under these circumstances would run directly counter to the express provisions of the Bankruptcy Code and to the Code's overall effort to give a debtor-in-possession some flexibility and breathing space. We conclude that from the filing of a petition in bankruptcy until formal acceptance, the collective-bargaining agreement is not an enforceable contract within the meaning of NLRA Sec. 8(d).
The legislative response to Bildisco was swift. Only five months after the decision, Congress enacted 11 U.S.C. Sec. 1113 as part of the 1984 amendments to the Bankruptcy Code. 2 Subsection 1113(a) provides that the trustee or debtor-in-possession "may assume or reject a collective bargaining agreement only in accordance with the provisions of this section." Subsection 1113(b) requires the trustee or debtor-in-possession to make a proposal to the union providing for employee benefit modifications that are necessary to permit the reorganization of the debtor and to assure that all creditors, the debtor, and all other affected parties are treated fairly. The debtor must also provide the union with all information necessary to effectively evaluate the proposal. Subsection 1113(b) further requires meetings between the debtor-in-possession and the union.
Subsection 1113(c) provides that the court shall approve an application for rejection of the collective bargaining agreement only if it finds that the debtor-in-possession has made a proposal that fulfills the requirements of subsection (b); that the union has refused to accept the proposal without good cause; and that the balance of the equities favors rejection of the contract.
Subsection 1113(c) contains a timetable during which the bankruptcy court must rule on the petition. Subsection 1113(e) contains a...
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