The opinion of the court was delivered by: HUYETT
The United Steelworkers of America (Steelworkers) appeal the decision of the bankruptcy court authorizing the Receivers of Alan Wood Steel Company (Receivers) to reject collective bargaining agreements between Alan Wood Steel Company (Debtor, Alan Wood) and the Steelworkers. We have jurisdiction to hear this appeal under Section 39(c) of the Bankruptcy Act, 11 U.S.C. § 67(c). For reasons stated below, we affirm the decision of the bankruptcy court.
Throughout this period, the Receivers continued to pay benefits under the collective bargaining agreements. These benefits, payable to current employees and to laid-off employees for a period of one year, consist of full medical benefits for employees and their families, life insurance, dental benefits, accidental death and dismemberment insurance, paid vacations, supplemental unemployment benefit fund contributions, and severance pay. (Finding of Fact No. 9) Additionally, retired employees continued to receive life and health insurance benefits to age sixty-five. (Finding of Fact No. 10) The Receivers considered the burden of paying these benefits, in view of the curtailed operations of the steel producing facilities, to be onerous. However, they were unsure of their obligations at that time. On August 30, 1977, the Receivers filed a petition for instructions with the bankruptcy court. (Record on Appeal No. 9) On September 7, 1977, the bankruptcy court denied the Receivers' petition for instructions, stating that where the Receivers' "course of conduct appears clearly defined, there is no reason for the receivers to ask for instructions merely to escape the performance of an unpleasant duty." (Record on Appeal No. 10)
Shortly thereafter, the Receivers filed a motion for authority under section 313 of the Bankruptcy Act to reject the collective bargaining agreements. A hearing was held on the motion on October 5, 1977, and the bankruptcy court issued an opinion granting the motion on October 27, 1977.
The bankruptcy court found that the operation of the Debtor's business in July and August of 1977 resulted in the loss of $2.8 million and $3.0 million respectively.
(Findings of Fact Nos. 12 and 13) The cost of funding the benefits provided by the collective bargaining agreements, exclusive of vacation and severance pay, was in excess of $2.1 million; vacation pay and bonuses amounted to more than $4.1 million for 1977 and 1978. (Findings of Fact Nos. 18 and 19) The bankruptcy court further found that an indeterminate liability existed for the payment of premiums for life insurance for retirees; this cost exceeded $14,000 per month in June, 1977, and $17,000 per month in September, 1977. (Finding of Fact No. 20) Furthermore, it was estimated that the cost of paying premiums for medical insurance for retirees would have exceeded $543,000.00 per year by December, 1977. (Finding of Fact No. 21) In view of the fact that the cost of the benefits under the agreements was found to exceed by $1.50 per hour the average costs of such benefits paid by Debtor's competitors (Finding of Fact No. 22), the bankruptcy court concluded that the cost of those benefits was onerous and burdensome to the Debtor's estate and the payment thereof would preclude the possibility of the Debtor effecting an arrangement under Chapter XI. (Finding of Fact No. 23) Under these circumstances, the bankruptcy court concluded that rejection of the collective bargaining agreement was justified.
The counsel for the Receivers represented to us at oral argument that there was no possibility that the Debtor's steelmaking operations would be resumed.
Thus, this case does not involve the rejection of a collective bargaining agreement where the post-filing estate continues to be involved in the same activities as the pre-filing debtor. Receivers here are attempting merely to preserve the estate's existing physical assets.
Power to Reject Collective Bargaining Agreements Pursuant to Section 313 of the Bankruptcy Act.
Our point of departure is to determine if section 313 of the Bankruptcy Act is applicable to collective bargaining agreements. Section 313 states that the bankruptcy court may "permit the rejection of executory contracts of the debtor, upon notice to the parties to such contracts and to such parties in interest as the court may designate." The Steelworkers contend that, despite the lack of qualifying language in the statute itself, the bankruptcy court may not authorize the rejection of collective bargaining agreements. We cannot agree.
First, every case in which this issue has been considered, so far as our research has determined, has held that the receivers may be empowered to reject executory collective bargaining agreements under the terms of section 313. E.g., Railway Clerks v. REA Express, Inc., 523 F.2d 164 (2d Cir. 1975); Shopmen's Local No. 455 v. Kevin Steel, Inc., 519 F.2d 698 (2d Cir. 1975); In re Bohack, 541 F.2d 312 (2d Cir. 1976); In re Penn Fruit, 92 LRRM 3548 (E.D. Pa. 1976).
Second, we believe that the language and policy of the Bankruptcy Act clearly support the conclusion that collective bargaining agreements may be rejected. The analysis provided by the Court of Appeals for the Second Circuit in Shopmen's Local No. 455 v. Kevin Steel, Inc., supra, is especially helpful. The Kevin Steel court resolved any potential conflict between section 313(1) of the Bankruptcy Act and section 8(a)(5) and (d) of the National Labor Relations Act, 29 U.S.C. § 158(a)(5), (d), by focusing on the nature of the bankruptcy proceeding itself. The court observed that "A debtor-in-possession
under Chapter XI . . . is not the same entity as the pre-bankruptcy company. A new entity is created with its own rights and duties, subject to the supervision of the bankruptcy court." 519 F.2d at 704. Therefore, the court concluded, the post-bankruptcy entity is simply not a party to the labor contract negotiated by the pre-bankruptcy debtor. The Kevin Steel court also noted that Congress could have expressly excluded collective bargaining agreements from the category of executory contracts which could be rejected, but did not.
We find the Second Circuit's analysis to be persuasive, and therefore hold that collective bargaining contracts may be rejected pursuant to section 313.
Showing Required to Justify Rejection of a Collective Bargaining Agreement.