# Shugrue v. Air Line Pilots Ass'n (In re Ionosphere Clubs, Inc.)

> Court of Appeals for the Second Circuit · December 21, 1990 · 922 F.2d 984

URL: https://www.frixlaw.com/law-library/cases/8986393

## Case

- **Full name:** In re IONOSPHERE CLUBS, INC. and Eastern Airlines, Inc., Debtors. Martin R. SHUGRUE, Jr., As Chapter 11 Trustee for Eastern Airlines, Inc. v. AIR LINE PILOTS ASSOCIATION, INTERNATIONAL
- **Court:** Court of Appeals for the Second Circuit
- **Decided:** December 21, 1990
- **Citations:** 922 F.2d 984
- **Precedential status:** Published
- **Opinion:** Concurring in part by Miner
- **Judges:** Miner, Timbers
- **Cited by:** 61 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/8986393

## How later opinions describe it (automated extraction)

- applying traditional canons of statutory construction to § 1113

## Opinion text

MINER, Circuit Judge,
concurring in part and dissenting in part:
I agree with my colleagues insofar as they conclude that application of the automatic stay provided by § 362 of the Bankruptcy Code to the arbitration of the labor protective provisions of the collective bargaining agreement is violative of § 1113(f) of the Code. I respectfully disagree with my colleagues insofar as they conclude that § 1113(f) does not bar an automatic stay of the Florida action, the injunction issued by the Bankruptcy Court against further prosecution of that action, and the Bankruptcy Court’s resolution of the wet-leasing dispute.
Section 1 of the Collective Bargaining Agreement between Eastern and ALPA provides:
that all present or future flying including flight training (except for initial factory-conducted training in newly purchased equipment), revenue flying, ferry flights, charters and wet-leases performed in or for the service of Eastern Air Lines, Inc., shall be performed by pilots whose names appear on the then-current Eastern Air Lines’ System Seniority List.
In apparent violation of the foregoing provision, Eastern entered into wet-leasing agreements whereby it leased aircraft with crews from Continental while Eastern pilots were on strike. As a debtor in a Chapter 11 reorganization, however, Eastern may not “unilaterally ... alter any provisions of a collective bargaining agreement” prior to court approval in the manner specified by § 1113 of the Code. 11 U.S.C. § 1113 (f).
Rather than first seeking the requisite court approval authorizing rejection of the collective bargaining agreement upon a showing that modifications in the agreement “are necessary to permit the reorganization of the debtor,” 11 U.S.C. § 1113 (b)(1)(A), Eastern proceeded to lease aircraft and crews for its normal business operations. Eastern made no effort to negotiate with ALPA before making its arrangements with Continental. As a consequence, ALPA sought in the district court in Florida to compel expedited arbitration of its wet-leasing grievance, to procure the issuance of an injunction in aid of arbitration and to obtain other relief as well. Arbitration of the wet-leasing grievance is required by the labor agreement, which *997 also requires arbitration of the labor protective provisions issue and of any other dispute that may arise out of the performance or non-performance of the agreement.
My colleagues “hold that application of the automatic stay to the arbitration brought pursuant to the collective bargaining agreement violated § 1113(f) since it allowed Eastern unilaterally to avoid the obligation to arbitrate.” In their opinion, this holding serves only to bar the application of the stay to the labor protective provisions arbitration proceeding. To the extent that § 1113(f) is implicated, however, it seems to me that there is no difference between rejecting the automatic stay as a bar to that arbitration proceeding and rejecting it as a bar to an action to compel arbitration of the wet-leasing issue. See In re Marine Pollution Serv., Inc., 88 Bankr. 588 (S.D.N.Y.1988).
In holding the automatic stay of § 362 applicable, and in enjoining further prosecution in the Florida District Court under the authority of § 105, the Bankruptcy Court proceeded to resolve the wet-lease issue by determining that “[tjhese wet-leases were, and are, reasonably necessary to Eastern’s efforts to rebuild its operations.” In re Ionosphere Clubs, Inc., 105 Bankr. 773, 775 (S.D.N.Y.1989). The Bankruptcy Court also found that “[b]y proceeding to enjoin Eastern from continuing with those [wet-lease] operations, ALPA would disrupt Eastern’s planned flight operations causing the estate to suffer irreparably by the substantial erosion of Eastern’s operations.” Id. While these determinations may be taken as a finding that elimination of the wet-leasing prohibition is a modification “necessary to permit the reorganization of the debtor,” 11 U.S.C. § 1113 (b)(1)(A), there was no compliance with the statutory scheme for rejection of the collective bargaining agreement, and the Bankruptcy Court therefore was without jurisdiction to excuse violation of the wet-leasing prohibition clause. See generally Note, Nobody Likes Rejection Unless You’re a Debtor in Chapter 11: Rejection of Collective Bargaining Agreements Under 11 U.S.C. § 1113 , 34 N.Y.L.Sch.L.Rev. 169, 171-74 (1989).
By obtaining its relief in the Bankruptcy Court in the context of an action to enforce an automatic stay, Eastern is able to avoid compliance with a carefully-drawn statute enacted by Congress to govern labor-management relations in a bankruptcy reorganization. As noted by my colleagues, the statute was designed to overcome the Supreme Court’s decision in National Labor Relations Board v. Bildisco & Bildisco, 465 U.S. 513, 528-29 (1984), which allowed a debtor unilaterally to terminate or alter a collective bargaining agreement pri- or to seeking bankruptcy court approval under § 365(a) for rejection of an exec-utory contract. The statute specifically forbids termination in the manner permitted by Bildisco and promotes the long-established national labor policy of encouraging collective bargaining. See In re Century Brass Prods., Inc., 795 F.2d 265, 266, 272 (2d Cir.), cert. denied, 479 U.S. 949 (1986).
Eastern simply cannot be relieved of its obligation to avoid wet-leasing unless it follows the step-by-step procedure established by Congress. Since it contends that the modification in employee benefits and protection it seeks is necessary to permit its reorganization, it first must make a proposal to ALPA. 11 U.S.C. § 1113 (b)(1)(A). Eastern must provide ALPA with information relevant to an evaluation of the proposal. Id. § 1113(b)(1)(B). It must hold meetings with ALPA in a good faith effort to reach a mutually satisfactory modification. Id. § 1113(b)(2). It may file an application for rejection only after the modification proposal has been made, discussed and rejected. Id. § 1113(d)(1). The court then will decide, after a hearing on notice to interested parties, whether to reject the agreement. Id.
Eastern cannot prevail, even after a hearing, unless the court finds that a proposal of the sort contemplated by the statute was made prior to the hearing, ALPA has refused without good cause to accept the proposal and “the balance of the equities clearly favors rejection of [the collective bargaining] agreement.” Id. § 1113(c). In making its decision, “the *998 court must consider whether rejection would increase the likelihood of successful reorganization.” Truck Drivers Local 807 v. Carey Transp., Inc., 816 F.2d 82, 89 (2d Cir.1987); see also In re Royal Composing Room, Inc., 62 Bankr. 403 (S.D.N.Y.), aff’d, 848 F.2d 345 (2d Cir.1988); cert. denied, 109 S.Ct. 1529 (1989). It is only after all the preliminary steps have been completed, and the court fails to rule on the application within thirty days after the hearing is commenced, that the debtor unilaterally “may terminate or alter any provisions of the collective bargaining agreement pending the ruling of the court on such application.” 11 U.S.C. § 1113 (d)(2). Eastern took this one-sided action without bothering with the preliminaries. See In re American Provision Co., 44 Bankr. 907, 909 (D.Minn.1984). We should not countenance this conduct, for it precludes resolution of the wet leasing dispute through the preferred process of collective bargaining.
I have no quarrel with the notion that the Bankruptcy Court has jurisdiction to perform the court functions described in § 1113. That jurisdiction was not invoked here, however, and there was accordingly an evasion of congressional purpose. My colleagues say that if a collective bargaining agreement can somehow be enforced in a bankruptcy court, then the automatic stay provisions of § 362 may be applied to enforcement of the agreement in a non-bankruptcy court; that the wet-leasing dispute properly was placed before the Bankruptcy Court here; and that the Bankruptcy Court’s exercise of its equitable powers under § 105 to enjoin enforcement of the collective bargaining agreement is a means that may be used for the protection of bankruptcy court jurisdiction. I say that application of the automatic stay provisions of § 362 to an action brought to compel compliance with the arbitration provisions of a collective bargaining agreement is inconsistent with the broad purposes and specific language of § 1113; that the wet-leasing dispute was not properly placed before the Bankruptcy Court here; and that the equitable powers of a bankruptcy court under § 105 may not be used to enjoin enforcement of a collective bargaining agreement in any manner inconsistent with § 1113. Accordingly, I would affirm the judgment of the district court in all respects.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/8986393. Public record. Not legal advice.