In re Trump Entertainment Resorts

Citation:
In re Trump Entertainment Resorts, et al., Case No. 14-4807 (3d Cir. Jan. 15, 2016)
Tag(s):
Ruling:
The Third Circuit Court of Appeals affirmed the Delaware Bankruptcy Court's decision, 519 B.R. 76 (Bankr.D.Del. 2014), applying section 1113 of the Bankruptcy Code to allow the Debtors to reject a collective bargaining agreement (“CBA”) despite the expiration of the CBA.
Procedural context:
Bankruptcy Court for District of Delaware granted the Debtors’ motion pursuant to section 1113 to reject the Union’s expired CBA. The parties petitioned for a direct appeal to the Third Circuit, which was granted, to determine whether section 1113 applies to an expired CBA.
Facts:
The Debtors own and operate the Trump Taj Mahal casino in Atlantic City, New Jersey. The casino employs 2,953 employees, 1,467 of whom are unionized. The most recent CBA between the Unite Here Local 54 (the “Union”) and the Debtors was negotiated in 2011 and expired prior to the Debtors’ filing for chapter 11 in September 2014. Upon filing for bankruptcy, the Debtors and the Union exchanged proposals with respect to the terms of a new CBA. The parties, however, were unable to reach a resolution. Accordingly, the Debtors filed a motion to reject the expired CBA pursuant to section 1113 of the Bankruptcy Code, which is an expedited process for debtors to restructure labor obligations, while also protecting unionized employees. The Union argued that section 1113 doesn’t apply because the CBA has expired and therefore there was no "contract" to reject. In addition, the Union argued that because 1113 didn’t apply, the Debtors are bound by the requirements of the NLRA which provide that once a CBA expires, the employer continues to be bound by the terms of the CBA until it enters into a new contract or bargains to impasse. The Debtors argued that 1113 does apply because there is no basis to distinguish between expired and unexpired CBA. The Bankruptcy Court granted the Debtors' motion and held that it could not discern any reason to distinguish between an expired and unexpired CBA under section 1113. In addition, the Bankruptcy Court noted that if the Union was correct, it would have the power to delay the bankruptcy process which "would subvert the policy and bargaining power balances Congress struck in section 1113.” The Third Circuit affirmed the Bankruptcy Court’s decision. The Third Circuit noted that the issue involved the interaction between certain provisions of the Bankruptcy Code and the NLRA. As a preliminary matter, the court noted that unlike section 365 of the Bankruptcy Code, there is no requirement in section 1113 for the CBA to be executory or unexpired. Nevertheless, the court focused on the intent and purpose of the Bankruptcy Code and section 1113. The Third Circuit noted that Congress enacted section 1113 in order to balance the concerns of distressed debtors in avoiding liquidation and the union’s goals of preserving labor agreements and maintaining influence in the reorganization process. Accordingly, section 1113 has very strict procedural requirements, including that the debtors must make a proposal, provide relevant information, meet and confer in good faith, and the rejection must be necessary to permit the reorganization. The Court found that this case “exemplifies the process that Congress intended” and that in this case, “rejection of the Debtors’ continuing labor obligations, as defined by the expired CBA, is necessary to permit the Debtors’ reorganization – indeed it is essential to the Debtors’ survival.” In addition, the Third Circuit found that the intent of Congress to be clear that it intended to incorporate expired CBAs in the language of section 1113. Since a debtor is bound to comply with an expired CBA, the court held that the purpose of section 1113 applies if the terms of the expired CBA will undermine the debtor’s ability to reorganize and remain in business. Similarly, permitting a debtor to reject an expired CBA is also consistent with the overall purpose of the Bankruptcy Code to grant debtors latitude to restructure their affairs and to avoid liquidation. Accordingly, if the Union was correct and the Debtors would be bound by the longer NLRA process, it would impede that goal. Lastly, the Third Circuit also rejected the Union’s argument that a debtor cannot reject an expired CBA under section 1113 on the basis that a debtor cannot assume or reject an expired executory contract under section 365. The court pointed out such an argument "ignores an important distinction between a CBA and any other executory contract: the key terms and conditions of a CBA continue to burden the debtor after the agreement’s expiration." Accordingly, “rejection of those terms, therefore, is not a moot issue as would be in the case of other contracts or leases."
Judge(s):
Schwartz, Scirica and Roth

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