Petition for Writ of Certiorari — Air Line Pilots Ass'n International v. Shugrue, 111 S. Ct. 2006 (1991) (No. 90-1482)

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IN THE —

Supreme Court of the United States

OCTOBER TERM, 1990

IN RE: IONOSPHERE CLUBS, INC. and

EASTERN AIRLINES, INC.,

Debtors.

AIR LINE PILOTS ASSOCIATION,

INTERNATIONAL, AFL-CIO,

‘ Petitioner,

MARTIN R. SHUGRUE, JR., as Chapter 11 Trustee for

EASTERN AIR LINES, INC.,

Respondent.

Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Second Circuit

PETITION FOR A WRIT OF CERTIORARI

RICHARD M. SELTZER

Counsel of Record

BABETTE A. CECCOTTI

RUSSELL S. HOLLANDER

THOMAS N. CIANTRA

PETER D. DECHIARA

TAMIR W. ROSENBLUM

COHEN, WEISS AND SIMON

330 West 42nd Street

New York, New York 10936

(212) 563-4100

Attorneys for Petitioner

Air Line Pilots Association,

International, AFL-CIO

oo ean

WILSON - EPgs PRINTING Co., INC. - 789-0096 - WASHINGTON, D.C. 20001

® EE 00

QUESTIONS PRESENTED FOR REVIEW

1. Whether a bankruptcy court can enjoin and fully

adjudicate the merits of a district court lawsuit alleging

that a carrier has violated a collective bargaining agree-

ment and the Railway Labor Act where that collective

bargaining agreement has not been modified or rejected

pursuant to Bankruptcy Code Section 1113?

2. Whether a lawsuit alleging that a carrier has vio-

lated a collective bargaining agreement and the Railway

Labor Act—a lawsuit which could exist independently of

a bankruptcy case—is a “core” proceeding in which a

bankruptcy court can issue a final order or judgment

pursuant to 28 U.S.C. § 157(b)?

3. Whether a bankruptcy court can enjoin and fully

adjudicate the merits of a district court lawsuit alleging

that a carrier has violated a collective bargaining agree-

ment and the Railway Labor Act where resolution of the

lawsuit requires consideration of laws of the United

States other than title 11 regulating organizations or ac-

tivities affecting interstate commerce, and where the law-

suit would be subject to mandatory withdrawal to the

district court pursuant to 28 U.S.C. §157/d) had it

originally been brought in the bankruptcy court?

(i)

LIST OF PARTIES TO THE PROCEEDINGS

The Air Line Pilots Association, International, AFL-

CIO was the defendant in the bankruptcy court, appellant

in the district court, appellee in the court of appeals and

is petitioner in this Court.

Eastern Air Lines, Inc. was the plaintiff in the bank-

ruptey court and the appellee in the district court.

Martin R. Shugrue, Jr., as Chapter 11 Trustee for East-

ern Air Lines, Inc., was the appellant in the court of ap-

peals and is the respondent in this Court.

TABLE OF CONTENTS

QUESTIONS PRESENTED FOR REVIEW ................

LIST OF PARTIES TO THE PROCEEDINGS .............

Ee sae |

OPINIONS BELOW ...................... » Sa ak

ii.

iii.

ccc cnc scaccccensenccecens ;

District Court ......... ON ES Se Pree

REASONS FOR GRANTING THE WRIT...

I. A BANKRUPTCY COURT DECISION ORDER-

ING DISMISSAL OF A DISTRICT COURT

CAUSE OF ACTION WHICH ALLEGES VIO-

LATIONS OF A COLLECTIVE BARGAINING

AGREEMENT AND THE RAILWAY LABOR

ACT, WHERE THE COLLECTIVE BARGAIN-

ING AGREEMENT HAS NOT BEEN MODI-

FIED OR REJECTED PURSUANT TO BANK-

RUPTCY CODE SECTION 1118, DIRECTLY

CONFLICTS WITH THE REQUIREMENTS

OF SECTION 1113 AND PRESENTS AN

ISSUE OF COMPELLING IMPORTANCE

WARRANTING THIS COURT’S REVIEW ......

(iii)

I om oO OF W

TABLE OF CONTENTS—Continued

Page

A. Section 1113 is the Exclusive Provision of

the Bankruptcy Code Governing Rejection

or Modification of a Collective Bargaining

RRC NES eed Ae mee A et 12

B. Section 1118 Bars the Application of the

Automatic Stay to a District Court Lawsuit

Seeking Enforcement of a Collective Bar-

COTES TIS sinccttaccnc eeesenieneniesteorsinneinotaan 14

1. The Automatic Stay is not Intended to

Centralize the Resolution of Lawsuits in

the Bankruptcy Court ........ SEE Se 15

2. Application of the Automatic Stay to a

District Court Lawsuit Seeking Enforce-

ment of a Collective Bargaining Agree-

ment in Order to Effect a Centralization

of Disputes in the Bankruptcy Court is

Inconsistent with the Exclusive Require-

matin GE TRRUIII TI os aniscsnincecscneseeensrsess. 18

Il. THE RULING BY 1HE COURT OF APPEALS

THAT THE WET-LEASE DISPUTE IS A

CORE PROCEEDING CONFLICTS WITH

THE JURISDICTIONAL PROVISION OF 28

U.S.C. § 157(b) AND DECISIONS OF OTHER

CIRCUITS AND PRESENTS AN ISSUE OF

COMPELLING IMPORTANCE WARRANT-

ING THIS COURT'S REVIEW ........................... 20

Ill. ADJUDICATION IN THE BANKRUPTCY

COURT OF A CAUSE OF ACTION UNDER

THE RAILWAY LABOR ACT IS INCON-

SISTENT WITH 28 U.S.C. § 157(d) AND PRE-

SENTS AN ISSUE OF CONFLICT IN THE

LOWER COURTS AND OF COMPELLING IM-

PORTANCE WARRANTING THIS COURT'S

3k _,_ RURIREN ONE DEE TEN Cen Detar maine 25

eke nee speadebelnidesiin ideestiin ienabbiislaios 30

TABLE OF CONTENTS—Continued

APPENDICES

Appendix A:

Appendix B:

Appendix C:

Appendix D:

Appendix E:

Appendix F:

Opinion of the Court of Appeals,

dated December 21, 1990

Mandate of the Court of Appeals,

dated January 11,1991

Opinion of the District Court,

dated April 9, 1990

Findings of Fact and Conclusions

of Law of the Bankruptcy Court,

dated October 4, 1989

Order of the Bankruptcy Court,

dated October 4, 1989

Text of Pertinent Statutory Pro-

visions

Page

87a

TABL DF AUTHORITIES

CASES Page

Accurate Die Casting Co., 292 N.L.R.B. No. 106

(1989) . LEE no ee ROT 19

Ahrens Aircraft, Ine. v. NLRB, 703 F.2d 23 (1st

Cir. 1008)... 19

In re Arnold Print Works, 815 F.2d 165. (st Cir.

1QBT) .............cccressascassessernssseasnsenssonsntonsesnnsrnnnsssensseces 22, 23

In re Asinelli, Ine., 93 Bankr. 433 (M. D.N.C.

| ) EE yn See 27

Barnett v. Stern, 909 F.2d 973 (7th Cir. 1990) ... 22, 24

Begier v. IRS, 110 8. Ct. 2258 (1990) ................. ; 10

In re Ben Cooper, 896 F.2d 1394 (2d Cir.), vacated,

122 8. CO. GB GD etettsccetrentnerere nner cscccnsss 9, 11, 22, 23

Brotherhood ef Ry. Clerks Vv. Florida East Coast

Ry., 384 U.S. 288 (1966)................................: _... 8-4, 28

Brotherhood of Ry. Trainmen, Enterprise Lodge

No. 27 Vv. Toledo, P. & W. R.R., 321 U.S. 50

(1@GA) .......<00cnccsscesseieebeneseeuneeabansennennnnsasastsensaceccoses ; 27

Burger King Corp. v. B-K Of Kansas, Inc.,

Bankr. 728 (D. Kan. 1986) ......... Sa PR Sa IR 29

In re Carolina Produce Distrib., Inc., 110 Bankr.

DOT (WW DBE.C. TD hciciacms teers cssttacericesscrrisicsvneee 27

In re Cassidy Land & Cattle Co., Inc., 836 F.2d

1130 (8th Cir.), cert. denied, 486 U.S. 1033

C1DBB) ..........c::ascssescnasnatecrechetsassuevunsssstaasesensnvsntesevess 24

In re Castlerock Properties, 781 F.2d 159 “(9th

Chr. 2DCBD .ececccssnssrenccelinaindebertanssteteaptanennstetsssccsss: 24

In re Century Brass Prods., Inc., 795 F.2d 265

(2d Cir.), cert. denied, 479 U.S. 949 (1986) ... 12,18

In re Chadbourne Indus., Ltd., 100 Bankr. 663

CE.D.OU. 7. BOGE ciccesicesesctensnerterescserneriren cress. 27

In re Chateaugay Corp., 826 F.2d 1177 (2d Cir.

1987) ...... I URE Sp IE 29

In re Continental Airlines, Inc., 50 Bankr. 351

(S.D. Tex. 1985), aff’d, 790 F.2d 35 (5th Cir.

BOOB). .nncccccsscesiieeussseilianenienenaselapsiabeasinniemesersnnsonss 19

In re Dalton, 733 F.2d 710 (10th Cir. 1984), cert.

dismissed, 469 U.S. 1185 (1985) .......... 29

In re Davis, 899 F.2d 1136 (11th Cir.), cert. de nied,

111 S. Ce. GIO CLGBO) .......ccecccrccrrcescccecccccesecees we 22

vii

TABLE OF AUTHORITIES—Continued

Page

Eastern Air Lines, Inc. v. Air Line Pilots Ass’n,

Int’l, 920 F.2d 722 (11th Cir. 1990) 4,19

Eastern Air Lines, Inc. vy. Air Line Pilots Ass'n,

Int’l, 670 F. Supp. 947 (S.D. Fla.), aff'd, 861

F.2d 1546 (11th Cir. 1988) 4

Eastern Air Lines, Inc. v. Air Line Pilots Ass’? n,

int'l, 710 F. Supp. 1342 (S.D. Fia.), aff'd, No.

89-5229 (llth Cir. June 7, 1989) ue 3,4

Eastern Air Lines, Inc. v. Air Line Pilots Ass’n,

Int'l, 744 F. Supp. 1140 (S.D. Fla.), aff’d, 920

F.2d 722 (11th Cir. 1990) 4

Eastern Air Lines, Inc. v. International Ass’ n of

Machinists, 121 Bankr. 428 (S.D.N.Y. 1990),

aff'd, 923 F.2d 26 (2d Cir. 1991) | 18, 27

GaTX Aircraft Corp. v. M/V Courtney Leigh,

768 F.2d 711 (5th Cir. 1985) . aes 17

In re Hartley, 55 Bankr. 781 (Bankr. N. D. Ohic

1985) ...... Oe Fl EEO 29

Hays & Co. Vv. Merrill, Lynch, ‘Pierce, Fenner &

Smith, Inc., 885 F.2d 1149 (3d Cir. 1989) 22

Howell Hydrocarbons, Inc. V. Adams, 897 F.2d

183 (5th Cir. 1990) 22

In re lonosphere Clubs, Inc., 922 F.2d 984 (2a Cir.

eA eI SAL te te SE es ne rete 1

In re lonosphere Clubs, Inc., 103 Bankr. 416

(S.D.N.Y. 1989) ......... 15 ETO —*

In re lonosphere Clubs, Inc., 108 Bankr. 901

(Bankr. S.D.N.Y. 1989), rev’d, 121 Bankr. 429

(S.D.N.Y. 1990), aff'd, 923 F.2d (2d Cir. 1991) . 27

In re Johns-Manville Corp., 68 Bankr. 600

I 27

In re K&B Mounting, Inc., 50 Bankr. 460 (Bankr.

i cmemmseunens 12

In re Kemble, 776 F.2d 802 (9th Cir. 1985) . . 29

In re King Mem. Hosp., Inc., 767 F.2d 1508 (11th

ts a Oe A 29

Land Vv. Dollar, 330 U.S. ‘731 (1947) Fo Tbe 10

In re Lieb, 915 F.2d 180 (5th Cir. 1990) 29

viii

TABLE OF AUTHORITIES—Continued

In re Maislin Indus., Inc., 59 Bankr. 9438 (Bankr.

BRINIG cae cer oe Ae a eee TO

Martin-Trigona Vv. Champion Fed. Sav. & Loan

Ass’n, 892 F.2d 575 (7th Cir. 1989) 0.0...

In re Meyertech Corp., 831 F.2d 410 (3d Cir.

a i iaiaieeneninnne

Michigan Milk Producers Ass’n V. Hunter, 46

Bankr. 214 (N.D. Ohio 1985), appeal dismissed,

786 F.2d 1165 (6th Cir. 1986) ...............000000......

In re Moens, 800 F.2d 173 (7th Cir. 1986) —........

Page

NLRB V. Bildisco & Biidisco, 465 U.S. 513 (1984) .. 10, 13,

NLRB Vv. Edward Cooper Painting, Inc., 804 F.2d

EES Ee ee ee 19

NLRB vy. Evans Plumbing Co., 639 F.2d 291 (5th

fe ESSE 9's Oem 19

In re Nicholas, Inc., 55 Bankr. 212 (Bankr. D.N.J.

alae aid dibees 19

North Haven Bd. of Educ. v. Bell, 456 U.S. 512

pr RO SR Sey en a A ee 14

Northern Pipeline Construction Co. Vv. Marathon

Pipeline Co., 458 U.S. 50 (1982) —.............. 10, 21, 23, 26

Norwest Bank Worthington v. Ahlers, 485 U.S.

Be IY chsh sp teh cdalegncessictdiceccniindlblaehcdinisdbalndibaalindiitebeisbcanpebicten 20

In re Parr Meadows Racing Ass'n, Inc., 880 F.2d

1540 (2d Cir. 1989), cert. denied, 110 S. Ct.

I ee ke cesstabens 17

Price v. Craddock, 85 Bankr. 570 (D. Colo. 1988) _.. 29

In re Pruitt, 910 F.2d 1160 (8d Cir. 1990) —........... 29

Radzanower V. Touche Ross & Co., 426 U.S. 148

EE ERs EERE PO Ro et PS eI ea 17

Railway Labor Executives Ass'n V. Boston &

Maine Corp., 689 F. Supp. 1092 (D. Me.), modi-

fied, 808 F.2d 150 (1st Cir. 1986), cert. denied,

en ssseenabeininens 28

Sheet Metal Workers’ Int'l Ass’n Vv. Mile Hi Metal

Sys., 899 F.2d 887 (10th Cir. 1990) 00000000... 14

Tringali v. Hathaway Mach. Co., 796 F.2d 553

I i s eetaninabibiass 29

Truck Drivers Local 807 v. Carey Transp., Inc.,

go gf Fg _— , Se eeee encore 14

TABLE OF AUTHORITIES—Continued

Page

United States vy. ILCO, Inc., 48 Bankr. 1010 (N.D.

Sie MII. cidasidesublceii uit btatcogteebeanannalininbsnscboaaiecmencs 29

United Steelworkers v. Unimet Corp., 842 F.2d

879 (6th Cir.), ceri. denied, 488 U.S. 828

(1988) ...... sceiedldsaibabiaasaseteiteiseptabainccisiealinmendancmbsheniecis 12, 13, 14

Watts v. Pennsylvania Housing Financing Co.,

S76 F.2d 1000 (Sd Cir. 1969) ............................... 15

Wheeling-Pittsburgh Steel Corp. v. United Steel-

workers, 791 F.2d 1074 (3d Cir. 1986) —............ 14

In re White Motor Corp., 42 Bankr. 693 (N.D.

I a e isienineiinins 28

In re Wood, 825 F.2d 90 (5th Cir. 1987)... 21, 22, 23, 24

Worldwide Detective Bureau, 296 N.L.R.B. No. 20

I al cl a i 19

STATUTES

Bankruptcy Reform Act of 1978, 92 Stat. 2549

I caneatemeibuniiniols 3,5

11 U.S.C. § 362 ........... LE Ta AEA Re ON passim

Bankruptcy Amendments and Federal Judgeship

Act of 1984, 98 Stat. 333

eR Se a eee SAID ee passim

ic exe a passim

28 U.S.C. § 1334 .. SPAT SLE Se CE Me Pd 26

Norris-Laguardia Act, 47 Stat. 70

I 10

Railway Labor Act, 44 Stat. 577 (as emended)

45 U.S.C. § 151 .......... sieunaaueabaalaeiaiaiaasaaseiaaasasiabelatei 3

EEE ETO re : 2

8 ER en abuse dann 2

LEGISLATIVE MATERIALS

Sen. Amendment No. 3112, to H.R. 5.74, 94th Cong.,

2d Sess. (1984) ....... PT ae LO EO OTT 14

130 Cong. Rec. H1849 (daily ed., March 21, 1984). 26

Sen. R. Rep. No. 95-989, 95th Cong., 2d Sess. 49

I sot cX anti ceiea ene a ee a re eae 17

TABLE OF AUTHORITIES—Continued

H.R. Rep. No. 95-595, 95th Cong., 2d Sess. 340

IID nnseconedsnssevsnentonsatansite A ee eae

MISCELLANEOUS AUTHORITY

Gibson, The New Law on Rejection of Collective

Bargaining Agreements in Chapter 11, 58 Am.

Bankr. L.J. 325 (1984) ;

Fatsis, As Economy Staggers, Bankruptcy Becomes 8

Field for the 1990s, Associated Press, Dec. 20,

1990 (NEXIS)

Annual Report of the Director of the Administra-

tive Office of the United States Courts (1989)

L. King, Collier On Bankruptcy (15th ed. 1989)

Moore’s Federal Practice (2d ed. 19990)

Page

21)

17, 24

IN THE

Supreme Cowt of the United States

OCTOBER TERM, 1990

No, -——

IN RE: IONOSPHERE CLuBS, INC. and

[EASTERN AIRLINES, INC.,

Debtors.

AIR LINE PILOTS ASSOCIATION,

INTERNATIONAL, AFL-CIO,

‘ Petitioner,

MARTIN R. SHUGRUE, JR., as Chapter 11 Trustee for

E;ASTERN AIR LINES, INC.,

Respondent.

Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Second Circuit

PETITION FOR A WRIT OF CERTIORARI

The Air Line Pilots Association, International, AFL-

CIO petitions this Court to issue a writ of certiorari to

the United States Court of Appeals for the Second Cir-

cuit to review the judgment in In re Ionosphere Clubs,

Inc., 922 F.2d 984 (2d Cir. 1990).

OPINIONS BELOW

The opinion of the court of appeals is reported at 922

M.2d 984 (2d Cir. 1990), and is reproduced at App. A.

The mandate of the court of appeals is reproduced at

1 (“App ") refers to the appendix annexed to this petition.

“J.A. ———") refers to the Joint Appendix on appeal.

eee

App. B. The opinion of the district court is reported at

114 Bankr. 379 (S.D.N.Y. 1990), and is reproduced at

App. C. The findings of fact and conclusions of law of

the bankruptey court are reported at 105 Bankr. 773

(Bankr. S.D.N.Y. 1989), and are reproduced at App. D.

The order of the bankruptcy court is reproduced App. E.

JURISDICTION

The judgment of the court of appeals was entered on

December 21, 1990. This Court’s jurisdiction is invoked

pursuant to 28 U.S.C. § 1254(1).

STATUTES INVOLVED

The statutes involved in the case are relevant portions

of the Bankruptcy Cede, 11 U.S.C. §§ 105, 362, 1113;

the Bankruptcy Amendments and Federal Judgeship Act

of 1984 (“BAFJA”), 28 U.S.C. §$ 157(b), (d), 1334;

and the Railway Labor Act (“RLA”), 45 U.S.C. §§ 152,

156. The pertinent text of these statutes is set forth in

App. F.

STATEMENT OF THE CASE

The underlying dispute at issue in this case arises out

of the decision of Eastern Air Lines, Ine. (‘“Eastern’’) to

lease aircraft from its corporate affiliate Continental Air-

lines, Ine. (“Continental’’?) and to crew the aircraft with

Continental pilots rather than pilots on the Eastern Sys-

tem Seniority List.* Because the wet-leasing violated the

collective bargaining agreement between Eastern and the

Air Line -Pilots Association, International (“ALPA’’),

ALPA filed a lawsuit in the United States District Court

for the Southern District of Florida seeking to enjoin

the leasing arrangement and/or to compel Eastern to sub-

2In the airline industry, this practice is re’erred to as a “wet-

lease.” Under a “wet-lease,” one carrier leases aircraft and crews

from another company for the purpose of performing the car-

rier’s flying. App. A, 89a. Prior to 1989, Eastern had never wet-

leased from another carrier. App. D, 89a.

mit to expedited arbitration. Eastern then commenced an

action in the United States Bankruptcy Court for the

Southern District of New York, where its Chapter 11

bankrptey case was pending, and filed a motion for a

preliminary injunction to enjoin ALPA’s lawsuit. Desnite

Eastern’s failure to comply with the exclusive provisions

of Bankruptcy Code Section 1113, 11 U.S.C. § 1113, gov-

erning the modification of collective bargaining agree-

ments, the bankruptcy court ordered ALPA to dismiss its

lawsuit as a violation of the automatic stay provision of

the Bankruptcy Code, 11 U.S.C. § 362(a) (3), and en-

joined the lawsuit pursuant to Bankruptcy Code Section

105, 11 U.S.C. § 105.

The Facts

At all times relevant to this dispute, ALPA and East-

ern were bound by a collective bargaining agreement (the

“Agreement’’) entered into pursuant to the Railway Labor

Act (“RLA”), 45 U.S.C. § 151 et seg. App. A, 3a. The

“scope” clause found in Section 1 of the Agreement pro-

vides that Eastern is obligated to crew all aircraft used

in or for the service of Eastern with pilots whose names

appear on the Eastern System Seniority List, and it ex-

pressly prohibits wet-leasing. App. A, 23a-24a.

On March 4, 1989, Eastern’s aircraft mechanics and

ground service personnel represented by the International

Association of Machinists (“IAM”) commenced a pri-

mary strike against Eastern. App. C, 35a. That same

day, ALPA decided that its members should engage in a

lawful sympathy strike in support of Eastern’s machin-

ists. See Eastern Air Lines, Inc. v. Atr Line Pilots Ass’n,

Intl, 710 F. Supp. 1342 (S.D. Fla.), aff'd, No. 89-5229

(11th Cir. June 7, 1989) .*

% At the commencement of ALPA’s sympathy strike, Eastern

filed a complaint in the United States District Court for the Southern

District of Florida seeking judicial approval] to alter certain terms

contained in the Agreement pursuant to Brotherhood of Ry. Clerks

On March 9, 1989, Eastern filed a petition in the United

States Bankruptcy Court for the Southern District of

New York pursuant to Chapter 11 of the Bankruptcy

Code, 11 U.S.C. § 1101 et seg. App. A, 4a. Eastern filed

a motion in the bankruptcy court on June 21, 1989 to

reject the Agreement pursuant to Bankruptcy Code Sec-

tion 1113. On July 26, 1989 Eastern withdrew its sec-

tion 1113 motion before the court considered it. App. A,

4a.

Immediately thereafter, Eastern wet-leased aircraft

and crews from Continental to be used to operate a por-

tion of Eastern’s regularly scheduled service. App. A,

5a-6a. Eastern apparently commenced only limited wet-

leasing in August 1989. In late August, however, East-

ern announced its plans to greatly increase its wet-

leasing to include at least 16 aircraft and hundreds of

Continental pilots for the duration of i989 and the in-

definite future. J.A. 596. ALPA commenced a lawsuit

in the United States District Court for the Southern Dis-

trict of Florida* seeking damages and an _ injunction

Vv. Florida East Coast Ry., 384 U.S. 238 (1966). App. C, 39a. In

Florida East Coast, this Court held that a carrier faced with a

primary strike may “depart from the terms and conditions of the

collective bargaining agreement,” id. at 246, under extremely limited

circumstances where the carrier can demonstrate that such changes

are “truly necessary” to allow the carrier to continue operations.

Id. at 248. In its complaint, Eastern sought a declaratory judgment

that would have allowed Eastern to expand the number of hours

that pilots would be permitted to fly. App. C, 39a. Eastern did

not seek any judicial relief to permit wet-leasing. See J.A. 562-574.

Eastern never pursued its Florida East Coast action, and it was

dismissed swa sponte on July 17, 1989. App. C, 39a.

4The United States District Court for the Southern District

of Florida, the site of Eastern’s headquarters, has been the forum

for a multitude of debto.-initiated litigation against ALPA both

pre-petition and post-petition. See, e.g., Eastern Air Lines, Ine. V.

Air Line Pilots Ass'n, Int'l, 670 F.Supp. 947 (S.D. Fla.), aff'd, 861

F.2d 1546 (11th Cir. 1988); Eastern Air Lines, supra, 710 F.Supp.

1342; Eastern Air Lines, Inc. v. Air Line Pilots Ass’n, Int'l, 744

F.Supp. 1140 (S.D. Fla.), aff'd, 920 F.2d 722 (11th Cir. 1990).

against the wet-leasing arrangement as an abrogation of

the parties’ Agreement and a violation of Eastern’s obli-

gations under the RLA or, in the alternative, an injunc-

tion pending expedited arbitration.” App. C, 40a-41a.

On September 25, 1989, Eastern filed a complaint and

motions for a temporary restraining order and prelimi-

nary injunction in the United States Bankruptcy Court

for the Southern District of New York to enjoin ALPA’s

lawsuit as burdensome to the Chapter 11 estate and as a

violation of the automatic stay. 11 U.S.C. § 362. App.

C, 41a. In the alternative, Eastern sought an injunction

pursuant to section 105 of the Bankruptcy Code, 11

U.S.C. § 105. See id.

Proceedings Below

i. Bankruptcy Court

The bankruptcy court ordered ALPA to dismiss the

wet-lease lawsuit as a violation of the automatic stay

under Code Section 362(a) (3), and enjoined ALPA from

prosecuting the wet-lease lawsuit pursuant to Code Sec-

tion 105. App. D, 101a-102a.

The bankruptcy court held, without explanation, that

Eastern’s complaint constituted a core proceeding and

that the bankruptcy court had jurisdiction pursuant to

28 U.S.C. $$ 157(b) (1) and (2). App. D, 94a. The

bankruptcy court stated that the purpose of the protec-

tion provided by Chapter 11 “is to give the debtor a

breathing spell, an opportunity to rehabilitate its business

and to enable the debtor to generate revenue.” App. D,

95a. The bankruptcy court then concluded that ALPA’s

lawsuit was filed in violation of the automatic stay provi-

sions of the Bankruptcy Code because the lawsuit “im-

pedes Eastern’s reorganization efforts and obstructs East-

5 ALPA’s complaint raises only issues of federal labor law aris-

ing under the RLA. The complaint does not allege any cause of

action under the Bankruptcy Code. J.A. 431-440,

ern in its rebuilding efforts by controlling the manner in

which it uses its assets.” App. D, 100a.° The bankruptcy

court ordered ALPA to dismiss the wet-lease lawsuit.

The bankruptcy court reached this conclusion without

directly addressing ALPA’s claim that section 1113 of

the Bankruptcy Code modified the automatic stay provi-

sions of the Code as applied to actions against a debtor

to enforce a collective bargaining agreement. See App.

C, 42a.?

ii. District Court

ALPA appealed the bankruptcy court’s decision to the

United States District Court for the Southern District of

New York. The district court consolidated the wet-lease

appeal with another appeal by ALPA arising out of a dis-

pute concerning the labor protective provisions (“LPPs”’)

contained in the Agreement. App. A, 30a-31a.*

The district court reversed both the Bankruptcy Court’s

wet-lease and LPP decisions. The district court held that

section 1113 prohibits the application of the automatic

stay to any proceeding brought by a union to enforce a

collective bargaining agreement against a debtor unless

‘The bankruptcy court also ruled that it had authority under

section 105 to enjoin any action which could potentially interfere

with the rehabilitation process. App. D, 97a-98a.

7 Although Eastern did not request the bankruptcy court to de-

termine the underlying merits of the wet-lease action, J.A. 419-426,

the bankruptcy court, without any notice, discovery or briefing,

reached the merits and ruled in Eastern’s favor. See App. D, 101a-

102a.

%In the LPP dispute, ALPA contended that Eastern had uni-

fied, consolidated, merged or pooled certain of its operations, serv-

ices and/or facilities with Continental and, therefore, Eastern was

required to make arrangements for the integration of the Eastern

and Continental pilot seniority lists according to the Agreement.

When Eastern refused to discuss the issue, ALPA sought bank-

ruptey court approval to arbitrate the LPP dispute. App. C, 36a-

37a. The bankruptcy court denied ALPA’s motion, concluding that

the requested arbitration would violate the automatic stay provisions

of the Code. App. C, 37a-39a.

and until the debtor complies with the provisions of sec-

tion 1113 of the Code. App. C, 85a."° The district court

agreed with the bankruptcy court that the automatic stay

contained in section 362 is intended to provide a “‘breath-

ing spell.” App. C, 49a (citation omitted). The district

court concluded, however, that the enactment of section

1113 rendered the automatic stay inapplicable to actions

brought to enforce rights and obligations contained in a

collective baa gaining agreement:

Judicial construction of the automatic stay, post-

Bildisco and post-section 1113, so as to disable work-

ers from commencing or continuing suits or pro-

ceedings avainst the debtor-in-possession arising

under collective bargaining agreements (suspending

all such actions temporarily and in some cases, in-

definitely), would debilitate the recognized Congres-

sional purpose of making collective bargaining

agreements enforceable against debtors until and

“unless the court approves the application for rejec-

tion pursuant to section 1113(c) or grants interim

relief under section 1113(e).” 5 Collier on Bank-

ruptcy, § 1118.01 at 1113-11 (15th ed. 1989).

App. C, 63a.'°

iii. Court of Appeals

The Second Circuit unanimously affirmed the district

court’s decision with respect to the LPP dispute. A

divided panel, however, reversed and remanded the por-

® The court also held that, because equitable powers under sec-

tion 105 can be used only in a manner consistent with the provisions

of the Bankruptcy Code, the bankruptcy court could not provide

relief pursuant to section 105 that, pursuant to the terms of section

1113, is only available to debtors who have satisfied the require-

ments of section 1113. App. C, 76a-83a.

10 The district court noted that the application of the stay by the

bankruptey court may have mooted ALPA’s request for injunctive

relief, as opposed to damages, because of the apparent termination

of the wet-leasing. App. C, 75a. The question of damages remains

a live controversy despite Eastern’s termination of wet-leasing and

recent termination of operations.

tion of the district court’s decision which related to the

wet-lease dispute. The court of appeals first noted that

in enacting section 1113, Congress intended that ‘a col-

lective bargaining agreement remains in effect and that

the collective bargaining agreement process continue|s]

after the filing of a bankruptcy petition unless and until

the debtor complies with the provisions of § 1113.” App.

A, lla (‘citation omitted). The majority determined,

however, that it was “preferable” to balance the purpose

of section 1113 against certain stated purposes of section

362 on a case-by-case basis. App. A, 138a-14a.

The majority concluded that Code Section 362 has two

distinct purposes: (1) to provide the debtor with a

“breathing spell’ from its creditors; and (2) ‘to central-

ize” disputes in the bankruptcy court so that the reor-

ganization can proceed “efficiently, unimpeded by un-

coordinated proceedings in other arenas,” App. A, 8a,

and so that the bankruptcy court can rule on the appro-

priate “manner and forum” in which disputes should be

resolved. App. A, 13a. The court of appeals recognized

that the first purpose could “not be reconciled with

$1113” and accordingly, stated “{wlere that the only

purpose of the automatic stay, we would be inclined to

affirm the district court’s thorough opinion in its en-

tiretv.” App. A, 13a. In light of the second stated pur-

pose of the automatic stay, the court of appeals con-

cluded, however, that it could not adopt a “bright line

rule precluding the application of the automatic stay to

any situation involving a collective bargaining agree-

ment.” /d. Instead, the court of appeals held that “a case

by case adjudication” is “preferable.” App. A, 13a-14a.

The court of appeals concluded that “application of the

automatic stay provisions of § 362 of the Bankruptcy

Code is precluded by $ 1113(f) only to the extent that

they permit a debtor unilaterally to terminate or alter a

collective bargaining agreement.” App. A, 22a.

With respect to the LPP dispute, the court of appeals

found that the application of the automatic stay would

allow Eastern to avoid its contractual obligation to arbi-

trate the dispute. Thus, it affirmed that portion of the

district court’s decision. App. A, 16a. With respect to

the wet-lease dispute, the court of appeals determined

that the application of the automatic stay would not

allow Eastern to avoid its contractual obligations.'' The

court of appeals reasoned that “application of § 362 to a

non-bankruptcy judicial proceeding only forecloses en-

forcement of the collective bargaining agreement if it

cannot be enforced in the bankruptcy court.” App. A,

17a. The court of appeals held that unless there was a

jurisdictional limitation on the bankruptcy court’s ability

to hear and decide the wet-lease dispute, the application

of the automatic stay to ALPA’s lawsuit would not con-

flict with section 1113. App. A, 18a. Relying upon its

decision in In re Ben Cooper, 896 F.2d 1394 (2d Cir.),

vacated, 111 S. Ct. 425 (1990), the court concluded that

the wet-lease dispute was a core proceeding that could be

determined by the bankruptcy court because the dispute

involved the effect of a post-petition contract on the col-

lective bargaining agreement. App. A, 19a-20a. Nar-

rowly construing 28 U.S.C. § 157(d), the court found no

impediment to bankruptcy court jurisdiction because the

wet-lease dispute involved merely a routine application

of the RLA. App. A, 20a-2la. Accordingly, the court

reversed the wet-lease portion of the district court’s deci-

sion. App. A, 20a."

'! Judge Miner dissented from this portion of the decision, stating

that, “{by] obtaining 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.”

App. A, 25a.

'2 The court also held that the bankruptcy court’s exercise of its

equitable power to enjoin the lawsuit under section 105 is subject

to the same considerations as the court set forth for application of

the automatic stay. App. A, 2la-22a. The court of appeals remanded

REASONS FOR GRANTING THE WRIT

This case presents issues of major significance to the

litigation of labor and other non-bankruptcy federal

causes of action during a Chapter 11 bankruptcy case

which merit this Court’s review. The issues involve three

statutory sections enacted as part of BAFJA in response

to this Court’s decisions in NLRB v. Bildisco & Bildisco,

465 U.S. 513 (1984), and Northern Pipeline Construc-

tion Co. Vv. Marathon Pipeline Co., 458 U.S. 50 (1982).

The first issue posed is whether a bankruptcy court can

enjoin and determine a pure labor law action seeking en-

forcement of a collective bargaining agreement and the

RLA where the collective bargaining agreement has not

been modified or rejected under section 1113. Section

1113 establishes significant procedural and substantive

standards for modification of a collective bargaining

agreement and contains an extraordinary provision un-

equivocally enacting Congress’ intention that ‘“‘no” other

provision of the Bankruptcy Code “be construed” to per-

mit alteration or modification of a collective bergaining

agreement “prior to compliance” with the provisions of

section 1113. 11 U.S.C. §1113(f). By permitting the

bankruptcy court to utilize other Code provisions to

truncate a federal district court lawsuit seeking to en-

force a collective bargaining agreement, the court of ap-

to the district court ALPA’s claim that the Norris-LaGuardia Act

removed jurisdiction from the bankruptcy court to issue its injunc-

tion and various issues concerning the merits of the wet-lease de-

cision. App. A, 22a.

Granting certiorari is appropriate because the decision of the

court below is “fundamental to the further conduct of the case.”

Land v. Dollar, 330 U.S. 731, 734 n.2 (1947) (quoting United

States v. General Motors Corp., 323 U.S. 373, 377 (1945)); see

12 Moore’s Federal Practice © 434.01, 6-42-6-43 (2d Ed. 1990)

(“ ‘finality’ of an order or judgment is not a prerequisite to peti-

tioning the Supreme Court for a writ of certiorari ... .") (foot-

note omitted); see, e.g., Begier v. IRS, 110 S. Ct. 2258 (1990)

(affirming 878 F.2d 762 (3d Cir. 1989) ).

peals permitted a modification of that agreement in direct

contravention of the requirements of section 1113 and

Congress’ clear command.

Second, by holding that the bankruptcy court could

hear and determine as a “core” matter pure federal labor

law issues, the court of appeals misinterpreted the provi-

sions of 28 U.S.C. §157(b) and placed itself in direct

conflict with other courts of appeal. This Court has rec-

ognized the importance of resolving a conflict within the

circuits in defining “core” proceedings. Jn re Ben Cooper,

896 F.2d 1394 (2d Cir. 1990), cert. granted, 110 S.Ct.

3236, vacated, 111 S.Ct. 425 (1990).

Finally, section 157(d) provides that a district court

“shall” withdraw a proceeding from the bankruptcy court

if resolution of the proceeding requires consideration of

bankruptcy and other federal laws. Pursuant to the clear

dictates of the statute, a federal labor law cause of action

originally brought in the bankruptcy court must be re-

moved to a federal district court. It is violative of that

statutory scheme for a bankruptcy court to enjoin and

determine the merits of such a non-bankruptcy cause of

action when the cause of action originates in a federal

district court. The court of appeals in the instant case

placed its imprimatur on a line of district court cases

that have ignored the plain meaning of section 157(d)

and have permitted withdrawal to the district court only

when stringent, judicially-created requirements are met

—requirements that have gone so far as to require the

presence of a legal question of first impression. In so

doing, the Second Circuit placed itself in conflict with

numerous other lower courts. This case presents a unique

opportunity for the Court to review the application of

section 157/d).

I. A BANKRUPTCY COURT DECISION ORDERING

DISMISSAL OF A DISTRICT COURT CAUSE OF

ACTION WHICH ALLEGES VIOLATIONS OF .A

COLLECTIVE BARGAINING AGREEMENT AND

THE RAILWAY LABOR ACT, WHERE THE COL-

LECTIVE BARGAINING AGREEMENT HAS NOT

BEEN MODIFIED OR REJECTED PURSUANT TO

BANKRUPTCY CODE SECTION 1113, DIRECTLY

CONFLICTS WITH THE REQUIREMENTS OF SEC-

TION 11183 AND PRESENTS AN ISSUE OF COM-

PELLING IMPORTANCE WARRANTING THIS

COURT’S REVIEW

A. Section 1113 is the Exclusive Provision of the Bank-

ruptcy Code Governing Rejection or Modification

of a Collective Bargaining Agreement

Congress enacted section 1113 of the Bankruptey Code,

11 U.S.C. §$ 1113, in 1984 as “an elaborate and thorough-

going revision of the rejection process for union con-

tracts.” In re K&B Mounting, Inc., 50 Bankr. 460, 462

n.3 (Bankr. N.D. Ind. 1985) (quoting Gibson, The New

Law on Rejection of Collective Bargaining Agreements

in Chapter 11, 58 Am. Bankr. L.J. 325, 327 n.1 (1984) ).

The section sets forth strict, detailed requirements that

a debtor must follow before a bankruptcy court may ap-

prove the debtor’s modification or rejection of a collective

bargaining agreement.

Specifically, section 1113 provides that a dehtor, before

seeking to modify or reject a collective bargaining agree-

ment, must propose to the union the modifications it

seeks, provide the union with the information needed to

evaluate its proposal, and confer in good faith with the

union in an attempt to reach accord on the proposal. 11

U.S.C. $1113(b): see United Steelworkers v. Unimet

Corp., 842 F.2d 879, 882 (6th Cir.), cert. denied, 488

U.S. 828 (1988); In ve Century Brass Prods., Inc., 795

F.2d 265, 273 (2d Cir.), cert. denied, 479 U.S. 949

(1986). Refore a bankruptey court may approve an ap-

plication to reject a collective bargaining agreement, the

court must be satisfied that the debtor has proposed only

those “necessary modifications” to the agreement which

are “necessary” to a successfui reorganization, that the

proposed modifications fairly and equitably spread the

economic sacrifice, that the union rejected the employer's

proposed modifications without good cause, and that the

balance of equities favors rejecting the agreement. 11

U.S.C. § 1113(¢); see Unimet Corp., 842 F.2d at 882;

Century Brass, 795 F.2d at 273.

Section 1113 provides in two different subsections that

its provisions are the exclusive remedy in the Code for

a debtor to modify a collective bargaining agreement.

First, section 1113(a) provides that a debtor may reject

2 collective bargaining agreement “only in accordance

with the provisions of this section.” Second, section

1113(f) contains an all-embracing and unique limitation

on judicical construction of any other Code section to

permit alteration of a collective bargaining agreement:

[njo provision of |the Code] shall be construed to

permit a trustee to unilaterally terminate or alter

any provisions of a collective bargaining agreement

prior to compliance with the provisions of this

section.

11 U.S.C. § 1113(f). Thus, Congress made clear its com-

mand that a debtor not achieve modification or rejection

of a labor contract by means of section 362, 105 or any

section of the Code other than section 1113. As the dis-

trict court concluded, absent a debtor’s compliance with

all the requirements of section 1113, “labor contract en-

forceability is unaffected by the bankruptcy laws, includ-

ing the automatic stay.” App. C, 65a.

The clear meaning of the languacve of section 1113 is

buttressed by its legislative history. Congress enacted

section 1113 in response to Bildisco. In Bildisco, this

Court, relying upon several provisions of the Bankruptcy

Code, including the automatic stay, held that a debtor,

after filing a bankruptcy petition, could unilaterally

abrogate a collective bargaining agreement. 465 U.S. at

529-30. As the court of appeals noted, Congress enacted

section 1113 as a legislative response to Bildisco in order

to ensure that collective bargaining agreements remain

enforceable in bankruptcy absent compliance with section

1113. App. A, 10a; see also Sheet Metal Workers’ Int’l

Ass’n V. Mile Hi Metal Sys., 899 F.2d 887, 889-90 (10th

Cir. 1990); Unimet Corp., 842 F.2d at 882; Truck

Drivers Local 807 v. Carey Transp., Inc., 816 F.2d 82,

88 (2d Cir. 1987); Wheeling-Pitisburgh Steel Corp. v.

United Steelworkers, 791 F.2d 1074, 1081-83 (3d Cir.

1986). Indeed, Senator Packwood, one of the sponsors of

the legislation and the draftsman of the language that

was later enacted as section 1113/f),'’* stated:

The amendments also prohibit the trustee from uni-

laterally altering or terminating the labor agree-

ment prior to compliance with the provisions of the

section . . . th{is] provision overrules the 5-4 por-

tion of the Supreme Court’s Bildisco decision and

means that the labor contract is enforceable and ©

binding on both parties until a court approved re-

jection or modification.

130 Cong. Rec. S8898 (daily ed., June 29, 1984) (em-

phasis added) ."4

B. Section 1113 Bars the Application of the Automatic

Stay te a District Court Lawsuit Seeking Enforce-

ment of a Collective Bargaining Agreement

Although stating that it was construing section 1113(f)

“quite literally,” App. A, lla, the court of appeals inter-

preted that section to be “circumstance” specific rather

13 Sen. Amendment No. 3112, to H.R. 5.74, 94 Cong., 2d Sess.

(1984); 130 Cong. Rec. S6181 (daily ed., May 22, 1984).

14 Since there was no Senate or House report on section 1113,

the statements made by individual sponsors of the legislation con-

stitute the “only authoritative indications of Congressional intent.”

North Haven Bd. of Educ. Vv. Bell, 456 U.S. 512, 527 (1982); see

also App. A, 10a.

than section specific. App. A, 12a. The court of appeals

concluded that “Congress did not choose to direct

$1113'f) at any specific [Bankruptcy Code] provision

.. id., thereby ignoring that Congress, fearful of judi-

cial interpretation of other Bankruptcy Code provisions to

nullify the exclusive provisions of section 1113, expressly

provided that the statute vitiated every other Bankruptcy

Code provision to the extent that such provisions could be

interpreted in any way to alter collective bargaining

agreements.’®

Venturing forth precisely where Congress feared the

judiciary would tread, the court of appeals ignored sec-

tion 1113(f)’s exclusive provision, rejected a “bright line

rule,” App. A, 13a, and opined that a “case by case ad-

judication” of the continuing application of the auto-

matie stay to collective bargaining agreements was “pref-

erable.” App. A, 13a-14a (emphasis added). The court

went on to apply its judicia'ly “preferred” interpretation

of the statute in a manner which enjoined ALPA’s district

court lawsuit and violated the plain requirements of the

statute.

1. The Automatic Stay is not Intended to Cen-

tralize the Resolution of Lawsuits in the Bank-

ruptcy Court .

The court of appeals concluded that the automatic

stay reflected two allegedly unrelated policies: First,

providing a debtor with a “breathing spell’? from cred-

15 As the district court correctly concluded:

Congress, although it did not amend the language of section

362, effectuated the same end in the language of section 1113(f)

—only there it expressed its purpose in a more thoroughgoing

fashion that would prevent not only the automatic stay but

any other lurking provision of Title 11 from interfering with

enforcement of collective labor agreements.

App. C, 69a; cf. Watts v. Pennsylvania Housing Financing Co.,

876 F.2d 1090, 1096 (3d Cir. 1989) (holding that a specific excep-

tion to section 362 was unnecessary when the “[contrary] intent of

Congress appears clear” in section 365, which “unequivocally and

without qualification” governs the dispute at issue).

itors and lawsuits, and second, permitting the bankruptcy

court “to centralize’ disputes in order that “the re-

organization can proceed efficiently, unimpeded by un-

coordinated proceedings in other arenas.”’ App. A, 8a

‘emphasis added). The court of appeals correctly con-

cluded that “to the extent the purpose of the automatic

stay is to give the debtor a ‘breathing spell,’ it cannot be

reconciled with $1113, which provides the sole method

by which a debtor may obtain a ‘breathing spell’ from its

obligations under a collective bargaining agreement.”

Id..° However, the court of appeals concluded that the

“importance” of the centralization policy precluded the

“bright line” application of section 1113 to permit col-

lective bargaining agreement enforcement outside the

bankruptey court. App. A, 13a.

Contrary to the assertion of the court of appeals, cen-

tralization of lawsuits in the bankruptey court per se

is not one of the purposes of the automatic stay.”

'’ The court of appeals concluded, in the alternative, that either

the automatic stay did not stay the prosecution of lawsuits in

the bankruptcy court, or that the court would interpret the auto-

matic stay not to bar such lawsuits. App. A, 17a-18a. The former

conclusion is highly questionable in light of this Court’s statement

in Bildisco that, pursuant to the automatic stay, recovery on a

labor law cause of action could “be had only through, the adminis-

tration of the claim in bankruptcy,” 465 U.S. at 529-30 (emphasis

added), and the precedent in lower courts cited by the court of

appeals holding that the automatic stay bars lawsuits in the bank-

ruptcy court. App. A, 17a. The court of appeals’ alternative de-

termination deflects the question of congressional intent. As the

district court concluded, “the evident legal uncertainty as to the

availability of the bankruptcy court as a forum in which workers

automatically could obtain a hearing on claims brought to enforce

labor rights forcefully undercuts the contention that Congress had

understood bankruptcy courts to be the forum of first resort.” App.

C, 69a.

7 Coneress certainly did not intend in enacting section 1113

to centralize in the bankruptey court collective bargaining agree-

Rather, the generally enunciated purpose of the auto-

matic stay, in addition to giving the debtor a “breathing

spell,” is to protect creditors by ensuring that creditors’

rights are adjudicated at the same time. The House and

Senate reports on section 562(a) make no mention of an

intention to centralize disputes; they make clear that the

purposes of the automatic stay are to give the debtor a

“breathing spell” and to make possible a _ procedure

whereby “all creditors are treated equally.” Sen. Rep.

No. 95-989, 95th Cong., 2d Sess. 49, 54 (1978), reprinted

in 1978 U.S. Code Cong. & Admin. News 5787, 5835,

5840; H.R. Rep. No. 95-595, 95th Cong., 2d Sess. 340

(1978); reprinted in 1978 U.S. Code Cong. & Admin.

News 5963, 6296-97. Courts have routinely agreed with

these statements of the purposes of the automatic stay."

To the extent the purpose of the automatic stay is to

prevent one creditor from having its rights adjudicated

before another creditor, the stay cannot be reconciled

with section 1113. Since the automatic stay and section

1113 thereby conflict, the more recently enacted provision

must prevail. Radzanower v. Touche Ross & Co., 426

U.S. 148, 155 (1976) ; see App. A, 13a.

ment enforcement actions. Section 1113(f), on its face, applies only

to debtor-initiated actions. As the district court concluded, “‘[a|bsent

the debtor’s request for modification, the statute reveals no purpose

to chanrel all actions to enforce or arbitrate existing, unmodified

agreements into the single forum of the bankruptcy court.” App.

C, 66a. See also App. A, 27a (Miner, J., dissenting).

18 See Martin-Trigona Vv. Champion Fed. Sav. & Loan Ass'n, 892

F.2d 575, 577 (7th Cir. 1989); In re Parr Meadows Racing Ass'n,

Inc., 880 F.2d 1540, 1545 (2d Cir. 1989), cert. denied, 110 S. Ct. 869

(1990); GATN Aircraft Corp. Vv. M’V Courtney Leigh, T68 F.2d

711, 71€ (Sth Cir. 1985): see also 2 Collier on Bankruptey © 362.01,

362-19 (15th ed. 1999) (automatic stay serves “‘the twin goals of

bankrupteyv—-a fvesh start for the debtor and equality of distribu-

tion to creditors’) (emphasis added).

2. Application of the Automatic Stay to a District

Court Lawsuit Seeking Enforcement of a Collec-

tive Bargaining Agreement in Order to Effect a

Centralization of Disputes in the Bankruptcy

Court is Inconsistent with the Exclusive Require-

ments of Section 1113

To the extent the automatic stay is intended, as viewed

by the court of appeals, to implement a “centralization”

of litigation in the bankruptcy court, and thereby a re-

organization “unimpeded” by uncoordinated proceedings

and controlled in “manner” by the bankruptcy court, the

effect of the stay can only be to block or delay indefinitely

the resolution of a lawsuit to enforce a collective bargain-

ing agreement—in effect, a “breathing spell’ under a dif-

ferent name. Congress has made a specific determina-

tion in section 1113 that, absent compliance with its ex-

clusive requirements, bankruptcy cases are required to

bear the potential burden of being “impeded” by enforce-

able collective bargaining agreements. The automatic

stay is clearly being utilized to defeat the exclusive pro-

visions of section 1113 if construed to permit a bank-

ruptey court to control its calendar and the course of

litigation so that the bankruptcy case remains “unim-

peded” by the lawsuit.

Neither, as the district court noted, can the special

expertise of the bankruptcy court provide a basis for en-

forcing an alleged centralization policy of the automatic

stay in this context.'’® The question in a collective bar-

gaining agreement enforcement action is simply “what

the contract or labor laws require.” App. C. 67a n.9.

As this court concluded even before the enactment of sec-

tion 1113, such questions are “outside the field of [the

19 Indeed, by statutory design the bankruptcy courts were not

created as neutral tribunals for such issues as arise under labor

law, “[u]nder [the bankruptcy] statutory scheme the federal courts

are directed to protect employers and in the [labor law statutory

scheme] they are required to be neutral.” Eastern Air Lines, Inc.

v. International Ass’n of Machinists, 121 Bankr. 428, 433 (S.D.N-.Y.

1990), aff'd, 923 F.2d 23 (2d Cir. 1991) (per curiam).

bankruptcy court’s] expertise.” Bildisco, 465 U.S. at

526-27. Accordingly, there is no basis to enforce the

automatic stay for centralization of labor law actions

in order to obtain bankruptcy court “expertise.”

Finally, application of the automatic stay to lawsuits

to enforce collective bargaining agreements and labor law

would not centralize labor law disputes in the bankruptcy

court. The court of appeals properly held that the bank-

ruptcy court must permit grievance and arbitration pro-

ceedings to go forward outside the bankruptcy court.

Proceedings to enforce a collective bargaining agreement

and labor law rights before the National Labor Relations

Board * or proceedings before the National Mediation

Board *' are not stayed by application of section 362.

Thus, the import of the court of appeals’ ruling, rather

than centralizing labor disputes in the bankruptcy court,

has the anomalous effect of establishing an exception to

the norm of the resolution of labor disputes outside the

bankruptcy court.”

In sum, while the court of appeals correctly rejected

the application of the automatic stay to a labor arbitra-

tion, the court of appeals erred in failing to apply the

same plain meaning of the statute to reject the applica-

tion of the automatic stay to a lawsuit to compel arbitra-

20 See NLRB v. Edward Cooper Painting, Inc., 804 F.2d 934,

941 (6th Cir. 1986); Ahrens Aircraft, Inc. V. NLRB, 703 F.2d 23,

24 (1st Cir. 1983); NLRB vy. Evans Plumbing Co., 639 F.2d 291,

293 (5th Cir. Unit B 1981); Jn re Nicholas, Inc., 55 Bankr. 212, 214

(Bankr. D.N.J. 1985); Worldwide Detective Bureau, 296 N.L.R.B.

No. 20 (1989), ALJ’s op. at 2 n.2, 22; Accurate Die Casting Co.,

292 N.L.R.B. No. 106 (1989), ALJ’s op. at 7.

“1 Jn re Continental Airlines, Inc., 50 Bankr. 342, 351 (S.D.

Tex. 1985), aff'd, 790 F.2d 35 (5th Cir. 1986).

*2 Further, a debtor may file labor lawsuits outside the bank-

ruptcy court on issues of its choosing. See e.g., Kastern Air Lines,

Inc. Vv. Air Line Pilots Ass’n, Int’l, 920 F.2d 722 (11th Cir. 1990).

tion and enforce a collective bargaining agreement.**

Particularly in light of ever-increasing bankruptcy fil-

ings,*" review by this Court is necessary to enforce clear

congressional intent on this issue of overwhelming im-

portance to the adjudication of labor disputes during a

Chapter 11 bankruptcy proceeding.

II. THE RULING BY THE COURT OF APPEALS THAT

THE WET-LEASE DISPUTE IS A CORE PROCEED-

ING CONFLICTS WITH THE JURISDICTIONAL

PROVISION OF 28 U.S.C. § 157(b) AND DECISIONS

OF OTHER CIRCUITS AND PRESENTS AN ISSUE

OF COMPELLING IMPORTANCE WARRANTING

THIS COURT’S REVIEW

Pursuant to 28 U.S.C. § 157(b) (1), the bankruptcy

court may hear, determine, and issue final orders and

judgments in a “core’’ proceeding, subject to appellate

review in the district court. See 28 U.S.C. § 158(a).

ff a matter is not a core proceeding, then, absent the con-

sent of the parties, the bankruptcy court may only issue

proposed findings of fact and conclusions of law subject

to de novo review in the district court. 28 U.S.C.

§$ 157(¢) (1).

23 This Court has held that a bankruptcy court’s equitable powers

under section 105(a) “must and can only be exercised within the

confines of the Bankruptcy Code.” Norwest Bank Worthington V.

Ahlers, 108 S. Ct. 963, 968-69 (1988) (emphasis added). 11

U.S.C. $ 105(a). Thus, section 105 may not be invoked to permit

a debtor to alter its collective bargaining agreement where the

Code otherwise explicitly provides exclusive procedures for such

relief.

*4See Annual Report of the Director of the Administrative

Office of the United States Courts 26-27 (1989) (in 1989, pending

bankruptcy caseload rose to an all-time high of 879,340 petitions) ;

Fatsis, As Economy Staggers, Bankruptcy Becomes Field for the

1990s, Associated Press, Dec. 20, 1990 (NEXIS) (bankruptcy

filings for year ended June 30, 1990 are double the 1981 figure;

10 of the 25 biggest bankruptcies in history occurred in the prior

eighteen months).

In the view of the court of appeals, the bankruptcy

court had jurisdiction to determine the wet-lease lawsuit

as a “core” proceeding under 28 U.S.C. § 157(b) (2)

because: (a) a post-petition contract with the debtor was

involved, and (b) the dispute affected the administration

of the estate. App. A, 19a-20a. The court’s conclusion

that the bankruptcy court could fully adjudicate the wet-

lease lawsuit, which arises solely under the RLA, is con-

trary to the statutory language and legislative intent of

section 157(b). Section 157(b) was enacted in response

to this Court’s decision in Marathon in order to limit the

full adjudicatory power of the bankruptcy court to those

matters central to the federal bankruptcy power. The

decision of the court of appeals, while consistent with its

prior decision in Ben Cooper, improperly expands the

statutory limits on the bankruptcy court’s jurisdiction

and conflicts with decisions of other circuits.

In In re Wood, 825 F.2d 90 (5th Cir. 1987), the Fifth

Circuit held that “core” matters consist of substantive

rights created by bankruptcy law, while “none-core” mat-

ters consist of actions which could exist independent of

the bankruptcy. Because the statute itself gives no defi-

nition of “core” and “non-core” proceedings——-providing

only a non-inclusive list of core proceedings, 28 U.S.C.

§ 157(b) (2)—the Fifth Circuit derived its formulation

from this Court’s decision in Marathon, and Justice

Brennan’s use of the word “core” in describing the fed-

eral bankrupcety power as “the restructuring of debtor-

creditor relations, which is at the core of the federal

bankruptcy power. ...” Wood, 825 F.2d at 95 (quoting

Marathon, 458 U.S. at 71). With respect to the state

law rights at issue in Marathon, Justice Brennan wrote

that the relationship of the state law claim to the bank-

ruptey did not change the essential nature of that non-

bankruptey claim, because “the plaintiff would be able to

proceed against the defendant on the state law contractual

claim.” Jd. at 95-96 ‘quoting Marathon, 458 U.S. at

72 n.26). The Fifth Circuit concluded that:

If the proceeding does not invoke a substantive right

created by federal bankruptcy law and is one that

could exist outside of bankruptcy, it is not a core

proceeding; it may be related to the bankruptcy be-

cause of its potential effect, but under Section 157

(ec) (1), it is an “otherwise related” or non-core

proceeding.

Id. at 97.

Even though Wood involved a state law claim, the

Wood formulation has been followed by other courts of

appeal which have held that non-bankruptcy claims

arising under state law or federal law are not “core”

proceedings. See Barnett v. Stern, 909 F.2d 973, 981

(7th Cir. 1990) (action brought under RICO); Jn re

Davis, 899 F.2d 1136, 1140-41 (11th Cir.) (Equal Ac-

cess to Justice Act), cert. denied, 111 S.Ct. 510 (1990);

Howell Hydrocarbons, Inc. v. Adams, 897 F.2d 183, 190

(5th Cir. 1990) (RICO action); Hays & Co. v. Merrill,

Lynch, Pierce, Fenner & Smith, Ine., 885 F.2d 1149,

1156-57, n.9 (3d Cir. 1989) (federal and state securities

law).

In direct contrast to Wood and its progeny, the court

of appeals, relying upon its decision in Ben Cooper, con-

cluded that the bankruptcy court had jurisdiction over

the wet-lease lawsuit.**> Ben Cooper presents, in part, the

issue raised here by petitioner, an issue which is the

subject of a conflict between the courts of appeals—-the

standard for defining “core” versus “non-core” proceed-

ings. In Ben Cooper, the court of appeals determined

that the insurance dispute at issue was a core proceeding

based upon the post-petition timing of the contract, not

on the underlying nature of the agreement. See also In re

Arnold Print Works, 815 F.2d 165 (1st Cir. 1987). That

“5 This Court has previously granted a writ of certiorari in

Ben Cooper, 110 8S. Ct. 3236, vacated, 111 S. Ct. 425 (1990), and

after a subsequent ruling by the court of appeals, has pending a new

petition for certiorari,

determination conflicts with the appropriate interpreta-

tion of “core” advanced by the Fifth Circuit in Wood.**

The conclusion of the court of appeals that the “rami-

fications” of the wet lease dispute ‘‘on the administration

of the estate are of sufficient importance to justify bank-

ruptcy court jurisdiction,” App. A, 20a, misreads the

scope of “core” proceedings. Congress enumerated spe-

cific “core” matters in section 157(b) (2), all of which,

consistent with the Marathon decision, describe traditional

debtor-creditor proceedings. The court of appeals relied

upon the so-called “catchall” provision found in section

157(b) (2)(A). That subsection provides that ‘matters

concerning the administration of the estate” are “core”

proceedings. Instead of interpreting this provision in a

manner consistent with the limited framework of a core

proceeding affecting the restructuring of the debtor-

creditor relationship, the court of appeals has in effect

*6 Additionally, the court of appeals’ application of Ben Cooper

here has the effect of drawing the bankruptcy court even farther

afield from traditional bankruptcy matters. The court of appeals

determined that the federal labor law questions at issue in this

case can be finally adjudicated by the bankruptcy court based upon

the mere presence of a post-petition wet-lease agreement, even if the

dispute in question is not between the parties to the wet-lease

agreement. In Ben Cooper and Arnold Print Works, disputes under

post-petition contracts were determined to be “core” matters be-

cause the contracting parties were, in effect, dealing with officers

of the bankruptcy court and the subject of such contracts was

estate property. See Ben Cooper, 896 F.2d at 1399; Arnold Print

Works, 815 F.2d at 169-70. Here, ALPA is not a party to the

post-petition contract that gave rise to the dispute. Moreover,

ALPA’s dispute with the debtor arises under a pre-petition collec-

tive bargaining agreement. Further, collective bargaining repre-

sentatives like ALPA do not enter into a particular new post-

petition business transaction with a debtor. Rather, they continue

carrying out their obligations as representatives of a class or

craft of the carrier’s employees under collective bargaining agree-

ments that, pursuant to the RLA, do not expire but become “amend-

able,” and that, pursuant to the Bankruptcy Code, can only be

modified consistent with the exclusive provisions of section 1113.

eliminated non-core matters by reading this provision to

include matters which affect, rather than concern, the

administration of the estate. The distinction between

“concern” and “affect” is critical because the latter is

similar to the broad grant of jurisdiction eliminated un-

der BAFJA.*" While Congress did not change the range

of matters subject to the bankruptcy jurisdiction of the

federal courts in BAFJA, Congress restricted the types of

matters that could be fully adjudicated in the bankruptcy

courts. Wood, 825 F.2d at 93.

Other circuits construing the enumerated matters in

section 157(b), including the catchall provision, have cau-

tioned that these provisions should be given restricted

meaning consistent with the statutory language and in-

tent.** Thus, “matters concerning the administration of

the estate” are, by definition, matters unique to bank-

ruptey cases. 1 Collier on Bankruptcy { 3.01, 3-39-3-40

(15th ed. 1989).

The effect of the interpretation of the court of appeals

is to render meaningless the statutory limitations on bank-

ruptcy court jurisdiction. Here, as in Ben Cooper, the

court of appeals has charted a path in derogation of the

statutory scheme, a path creating a conflict with other

courts of appeal. That conflict on this important juris-

dictional question merits review by this Court.

*7 Prior to BAFJA, bankruptcy court jurisdiction extended to all

civil proceedings arising under title 11 or arising in or related to

cases under title 11. 28 U.S.C. §§ 1471(b), (c) (repealed).

*8 See Barnett, 909 F.2d at 979; In re Meyertech Corp., 831 F.2d

410, 416 (3d Cir. 1987) ; In re Castlerock Properties, 781 F.2d 159,

162 (9th Cir. 1986); see also In re Cassidy Land & Cattle Co., Inc.,

836 F.2d 1130, 1132 (8th Cir.), cert. denied, 486 U.S. 1033 (1988).

Ill. ADJUDICATION IN THE BANKRUPTCY COURT

OF A CAUSE OF ACTION UNDER THE RAILWAY

LABOR ACT IS INCONSISTENT WITH 28 U.S.C.

§ 157(d) AND PRESENTS AN ISSUE OF CONFLICT

IN THE LOWER COURTS AND OF COMPELLING

IMPORTANCE WARRANTING THIS COURT'S RE-

VIEW

In determining whether ALPA’s challenge under the

RLA to Eastern’s wet-leasing ‘“‘was properly presented

to the bankruptcy court, or could have been,” App. A,

18a, the Second Circuit properly determined that it was

necessary to confront the application of the mandatory

withdrawal provision of the BAFJA, 28 U.S.C. § 157(d).

That provision states that:

[tlhe district court shall . . . withdraw a proceed-

ing if the court determines that resolution of the

proceeding requires consideration of both Title 11

and other laws of the United States regulating or-

ganizations or activities affecting interstate com-

merce.

28 U.S.C. § 157(d) (emphasis added). The court of ap-

peals determined that dismissal of a lawsuit brought in

the district court was proper because mandatory with-

drawal of the lawsuit to the district court would not have

been required if the lawsuit had originated in the bank-

ruptey court. App. A, 20a. This conclusion is contrary

to the specific, mandatory language of section 157/(d),

and raises an issue of importance concerning which the

lower courts have offered conflicting interpretations.

The command of section 157/d) is clear. Where, at a

minimum, non-bankruptcy federal law provides the rule

of decision governing a proceeding in bankruptcy, the

case must be heard by an Article III tribunal. Section

157(d) represents a congressional judgment to limit the

jurisdiction of the Article | bankruptcy courts by requir-

ing the adjudication of non-bankruptcy federal law claims

in the Article III courts.

To justify its conclusion that ALPA’s wet-leasing ac-

tion could have been brought and conclusively adjudicated

by the bankruptcy court, the court below approved a

stringent, judicially-created precondition to withdrawal

which is at odds with the clear language of the statute.

In conjunction with its conclusion that ALPA’s wet-

leasing action is a core proceeding within the meaning

of section 157(b) (2)(A), App. A, 19a-20a, the court of

appeals has returned to the bankruptcy courts a broad

grant of independent judicial authority which Congress

plainly intended to curtail in light of this Court’s de-

cision in Marathon.

Bankruptcy jurisdiction prior to Marathon violated the

requirements of Article III by granting essential judicial

functions to tribunals lacking constitutional assurances

necessary to an independent judiciary. See supra at 24.

In this regard, the Marathon Court rejected the conten-

tion that the bankruptcy courts were a constitutionally

permissible adjunct of the district court. 458 U.S. at 87.

In response to Marathon, Congress sought to constitute

the bankruptcy court as a true adjunct of the district

courts, specifically concerned with the administration of

the Bankruptcy Code. It assigned plenary bankruptcy

jurisdiction to the district court, see 28 U.S.C. § 1334/a),

subject to a power to return bankruptcy matters to the

bankruptcy courts. 28 U.S.C. §157(a). In Section 157,

Congress also limited the universe of proceedings in which

bankruptcy courts could issue final orders. See 28 U.S.C.

$$ 157(b)}, (ce). The mandatory withdrawal provision

complements the scheme by ensuring that the bankruptcy

court functions as a specialized adjunct of the district

court and not as a cognate tribunal on questions of gen-

eral federal law.*’ By requiring the district courts to

withdraw the reference of an adversary proceeding re-

2° Indeed, it is clear Congress intended that the mandatory with-

drawal provision extend to questions of federal laber law. See

130 Cong. Rec. H1849-50 (daily ed., March 21, 1984) (remarks of

Rep. Kastenmeier).

quiring consideration of non-bankruptcy federal law, sec-

tion 157(d) furthers Congress’ intent by insuring that

the jurisdiction of the bankruptcy courts is limited to its

narrow area of expertise, Title 11.

The decision below requires causes of action brought

solely under the RLA to be adjudicated in the bankruptcy

court. The court below followed the lead of district court

cases in the Second Circuit, App. A, 20a, and in the Fourth

Circuit limiting mandatory withdrawal to cases of “first

impression” under federal law. In these cases the bank-

ruptcy court has been permitted to hear and decide all

cases governed by non-bankruptcy federal law judged to

“merely involve a routine application of established | fed-

eral| legal standards.” Jn re Ionosphere Clubs, Inc., 103

Bankr. 416, 420 (S.D.N.Y. 1989).*%" By adopting this

standard, the court of appeals has effectively engrafted

a judicially-created requirement onto the statute. No-

where does the mandatory withdrawal provision require

that the federal issue necessary to resolution of the pro-

ceeding present a “difficult” question—as opposed to the

3® Accord In re Carolina Produce Distrib., Inc., 110 Bankr. 207,

209 (W.D.N.C. 1990); In re Chadbourne Indus., Ltd., 100 Bankr.

663, 667 (S.D.N.Y. 1989); Jn re Asinelli, Inc., 93 Bankr. 433

(M.D.N.C. 1988); In re Johns-Manville Corp., 63 Bankr. 600, 602

(S.D.N.Y. 1986). In Ionosphere Clubs, for example, the district

court denied a section 157(d) motion in an adversary proceeding

brought by Eastern to enjoin alleged acts of strike misconduct,

even though the district court recognized the necessity for the

trial court to review the jurisdictional prerequisites of the Norris-

LaGuardia Act, 29 U.S.C. $101 et seq., which the district court

viewed as a “routine” application of law. 103 Bankr. at 420. The

bankruptcy court proceeded to issue an injunction in clear conflict

with this Court’s decision in Brotherhood of Ry. Trainmen, Enter-

prise Lodge No. 27 v. Toledo, P. & W. R.R., 321 U.S. 50 (1944).

See In re lonosphere Clubs, Inc., 108 Bankr 901, 943-45 (Bankr.

S.D.N.Y. 1989). This failure to properly apply settled law was

eventually corrected many months later on appeal. Eastern Air

Lines, Inc. V. International Ass’n of Machinists, 121 Bankr. 428

(S.D.N.Y. 1990), aff'd, 923 F.2d 26 (2d Cir. 1991) (per curiam).

“routine” judicial task of declaring what the law is and

applying that law to a set of facts."

The court of appeals’ determination concerning section

157(d) also merits review because it creates a conflict with

the approach taken by other courts which have applied the

standard articulated in the leading decision under section

157(d), In re White Motor Corp., 42 Bankr. 693 (N.D. Ohio

1984). In White Motor, the court held that section 157

(d) required that a proceeding be withdrawn only when

consideration of federal law “is necessary for the resolu-

tion of a case or proceeding,” 7.e., when the case “can-

not be resolved without substantial and material consid-

eration of non-bankruptcy federal law.” Jd. at 703, 704.

Applying this standard, numerous courts have held, with-

out more, that bankruptcy-related claims must be heard

31 As demonstrated in this case, the court of appeals’ approach is

incompatible with the plain thrust of the mandatory withdrawal

provision. Contrary to the court of appeals’ conclusion, this case

does require the bankruptcy court to “engage itself in the intri-

cacies of the RLA,” App. A, 2la, because ALPA’s claims require

detailed consideration of this Court’s decision in Florida East

Coast, which limits a carrier’s ability to alter the terms and condi-

tions of a collective bargaining agreement during a strike. A

decision on the merits will require consideration of a number of

unsettled issues under Florida East Coast. In particular, the court

will have to examine whether the carrier properly altered status

quo working conditions prior to obtaining court approval. The

district court’s opinion in Florida East Coast, affirmed by this

Court, held that the carrier had to adhere to the collective bar-

gaining agreement “except upon specific authorization of this Court

after a finding of reasonable necessity.” 384 U.S. at 242. But cf.

Railway Labor Executives Ass'n V. Boston & Maine Corp., 639

F.Supp. 1092, 1106 n.10 (D.Me.) (prior approval not required),

modified on other grounds, 808 F.2d 150 (1st Cir. 1986), cert.

denied, 484 U.S. 830 (1987). Second, this case raises the question

of whether and to what extent Florida East Coast relief can be

afforded in the case of a sympathy, as opposed to a primary, strike

—an issue of first impression.

in an Article III court whenever federal law provides the

rule of decision.*

Review of this case would clarify a central component

of the bankruptcy jurisdiction scheme whose interpreta-

tion has divided the lower federal courts. Because deci-

sions on motions to withdraw the reference under section

157(d) have been held to be not directly appealable,** the

construction of that provision has yet to be—and is un-

likely to be—fully developed by the circuit courts of ap-

peal. Review of this case will afford guidance to the

lower federal courts in an area of central importance to

the scheme of bankruptcy jurisdiction.

32 See, e.g., Price Vv. Craddock, 85 Bankr. 570 (D. Colo. 1988)

(debtor’s counterclaim under securities laws warrants withdrawal) ;

Burger King Corp. v. B-K Of Kansas, Inc., 64 Bankr. 728 (D. Kan.

1986) (action against the debtor alleging violation of federal

trademark law must be withdrawn) ; United States v. ILCO, Inc., 48

Bankr. 1016, 1021 (N.D. Ala. 1985) (claims against debtor under

federal environmental statutes); Michigan Milk Producers Ass’n V.

Hunter, 46 Bankr. 214, 216 (N.D. Ohio 1985) (antitrust counter-

claim brought by bankruptcy trustee in action to determine status

of claim), appeal dismissed, 786 F.2d 1165 (6th Cir. 1986); In re

Hartley, 55 Bankr. 781, 785 (Bankr. N.D. Ohio 1985) (bankruptcy

trustee’s RICO claim); In re Maislin Indus., Inc., 50 Bankr. 943,

950 (Bankr. E.D. Mich. 1985) (recommending withdrawal of action

to recover alleged under payments under federal tariff schedule).

33 In re Lieb, 915 F.2d 180 (5th Cir. 1990); In re Pruitt, 910

F.2d 1160 (3d Cir. 1990); In re Chateaugay Corp., 826 F.2d 1177

(2d Cir. 1987); In re Moens, 800 F.2d 173 (7th Cir. 1986); In re

Kemble, 776 F.2d 802 (9th Cir. 1985); In re King Mem. Hosp.,

Inc., 767 F.2d 1508 (1ith Cir. 1985) (per curiam); In re Dalton,

733 F.2d 710 (10th Cir. 1984), cert. dismissed, 469 U.S. 1185

(1985); see also Tringali v. Hathaway Mach. Co., 796 F.2d 553

(1st Cir. 1986) (withdrawal decision is interlocutory) (dicta).

CONCLUSION

For the foregoing reasons, a writ of certiorari should

be granted.

Respectfully submitted,

RICHARD M. SELTZER

Counsel of Record

BABETTE A. CECCOTTI

RUSSELL S. HOLLANDER

THOMAS N. CIANTRA

PETER D. DECHIARA

TAMIR W. ROSENBLUM

COHEN, WEISS AND SIMON

330 West 42nd Street

New York, New York 10036

(212) 563-4100

Attorneys for Petitioner

Air Line Pilots Association,

March 21, 1991 International, AFL-CIO

APPENDICES

APPENDIX A

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Nos. 580, 581—August Term 1990

(Argued November 14,1990 Decided December 21, 1990)

Docket Nos. 90-5033, 90-5035

IN RE: IONOSPHERE CLUBS, INC.

and EASTERN AIRLINES, INC.,

Debtors.

MARTIN R. SHUGRUE, JR., AS CHAPTER 11 TRUSTEE

FOR EASTERN AIRLINES, INC.,

nn Appellant,

AIR LINE PILOTS ASSOCIATION, INTERNATIONAL,

Appellee.

Before:

MINER and TIMBERS, Circuit Judges,

and SPRIZZO, District Judge, for the Southern

District of New York, sitting by designation

Appeal from an order entered April 10, 1990, in the

-Southern District of New York, Robert W. Sweet, Dis-

trict Judge, reversing two orders of the bankruptcy court

that stayed appellee’s attempts to arbitrate a dispute

arising from its collective bargaining agreement with

appellant and to bring an action to enjoin a practice of

appellant as violative of the collective bargaining agree-

ment. 114 B.R. 379 (S.D.N.Y. 1990).

Affirmed in part, reversed in part and remanded.

Judge Miner concurs in part and dissents in part in

a separate opinion.

TIMBERS, Circuit Judge:

Appellant Martin R. Shugrue, Jr., Chapter 11 Trustee

for Eastern Airlines, Inc. (Eastern), appeals from an

order entered April 10, 1990 in the Southern District of

New York, Robert W. Sweet, District Judge, reversing

two orders of the bankruptcy court that stayed attempts

by the Air Line Pilots Association, International

(ALPA) to arbitrate a dispute arising out of their col-

lective bargaining agreement with Eastern and to prose-

cute a lawsuit seeking to enjoin Eastern’s practice of

wet-leasing aircraft and crews as violative of the collec-

tive bargaining agreement.

On March 9, 1989, Eastern filed a petition for reor-

ganization under Chapter 11 of the Bankruptcy Code.

Subsequently, ALPA, which was engaged in a sympathy

strike against Eastern, sought relief from the automatic

stay to initiate an arbitration to determine whether labor

protective provisions |LPPs) in the collective bargaining

agreement had been triggered by Eastern’s merger with

Continental. The bankruptcy court, Burton R. Lifland,

Chief Bankruptcy Judge, denied that petition. Jn re

Ionosphere Clubs, Inc., 105 B.R. 765 (Bankr. S.D.N.Y.

1989) (the LPP-decision).

After the strike began and after Eastern filed its

petition for reorganization, Eastern entered into wet-

lease contracts with Continental. Wet-leasing is a prac-

tice hy which one airline leases aircraft and crews from

another airline. ALPA commenced an action in the

Southern District of Florida, seeking to enjoin this prac-

tice as violative of its collective bargaining agreement

with Eastern. In response, Eastern commenced an ad-

versary proceeding in the bankruptcy court to enjoin

ALPA from prosecuting the Florida action. The bank-

ruptev court, Burton R. Lifland, Chief Bankruptcy Judge,

held that ALPA’s action was violative of the automatic

stay and enjoined its prosecution pursuant to its powers

under 11 U.S.C. §105(a) (1988). In re Ionosphere

Clubs, Inc., 105 B.R. 773 (Bankr. S.D.N.Y. 1989) (the

wet-lease decision).

ALPA appealed both bankruptcy court orders to the

district court pursuant to 28 U.S.C. §158(a) (1988).

The district court reversed them both. The court held

that 11 U.S.C. §1113(f) (1988) precludes the applica-

tion of the automatic stay and the bankruptcy court’s

equitable powers to any proceeding brought by a union

to enforce a collective bargaining agreement against a

debtor, unless and until the debtor complies with the

provisions of § 1113, which regulates the. termination or

modification of collective bargaining agreements by a

debtor in bankruptcy. Jn re Ionosphere Clubs, Inc., 114

B.R. 379 (S.D.N.Y. 1990).

On appeal, Eastern contends that (1) § 1113(f) of the

Bankruptcy Code does not preclude application of the

automatic stay provisions of § 362 or of the bankruptcy

court’s equitable powers under § 105 to ALPA’s attempts

to enforce the collective bargaining agreement outside

the bankruptcy court; and (2) the bankruptcy court

decisions should be reinstated.

For the reasons that follow, we affirm the district

court’s order as to the LPP-decision and reverse its order

as to the wet-lease decision. We remand the case to the

district court for further consideration.

We shall summarize only those facts and prior pro-

ceedings believed necessary to an understanding of the

issues raised on appeal.

This appeal involves two issues in a labor dispute be-

tween Eastern and ALPA. At all times relevant to this

appeal, the relationship between the two parties was

governed by a collective bargaining agreement dated Feb-

ruary 23, 1986 and entered into pursuant to the Railway

Labor Act (RLA), 45 U.S.C. § 151 et seg. (1988).

On March 4, 1989, the International Association of

Machinists and Aerospace Workers (IAM) began a pri-

mary strike against Eastern. Soon thereafter, ALPA

and the Transportation Workers Union of America

struck Eastern in sympathy with the IAM. On March

9, 1989, Eastern filed a petition for reorganization under

Chapter 11 of the Bankruptcy Code in the Southern Dis-

trict of New York. On June 21, 1989, Eastern filed a

motion in the bankruptcy court to reject the collective

bargaining agreement pursuant to § 1113. Eastern with-

drew that motion on July 26, 1989. At the time the bank-

ruptey court reached the decisions under review on the

instant appeai, no application under $1113 to terminate

or modify the collective bargaining agreement was pend-

ing before it. Martin R. Shugrue, Jr. was appointed

Trustee for - .stern on April 19, 1990.

(A)

The collective bargaining agreement contained LPPs

designed to protect ALPA members in the event of a

merger. The collective bargaining agreement provided

that disputes arising from it would be submitted to arbi-

tration and it set forth a procedure governing that proc-

ess. Eastern was sold to Texas Air Corporation (Texas

Air) within days after the collective bargaining agree-

ment became operative. After Eastern’s acquisition by

Texas Air, a dispute arose as to the operation of the

LPPs. On June 10, 1986, Eastern commenced an action

in the Southern District of Florida, seeking a declara-

tion that the collective bargaining agreement was invalid.

That contention was rejected and Eastern was ordered

to arbitrate the dispute. Eastern Air Lines, Inc. v. Air

Line Pilots Ass’n, Int’l, 670 F. Supp. 947 (S.D. Fla.

1987), aff'd, 861 F.2d 1546 (11 Cir. 1988).

On August 6, 1986, pursuant to the provisions of the

collective bargaining agreement, ALPA filed a grievance

with the System Board of Adjustments, the body estab-

lished to hear and determine grievances based on dis-

- 5a

putes concerning the collective bargaining agreement.

On March &, 1989, the arbitration panel ruled in favor

of ALPA. It concluded that the LPPs provided that, in

the event of a merger, seniority lists were to be merged.

The panel did not decide whether a merger had taken

place that would have triggered the LPPs. The decision

was not signed by all the panel members until the next

day, approximately seven minutes after Eastern filed its

bankruptcy petition.

On July 21, 1989, ALPA filed a motion in the bank-

ruptcy court, seeking a determination that the arbitra-

tion decision became effective prior to Eastern’s Chapter

11 filing and, thus, was not affected by the automatic

stay, or, in the alternative, it sought relief from the

automatic stay to implement the arbitration decision.

ALPA supplemented its motion requesting relief from

the automatic stay with a request to commence a second

arbitration to determine whether Eastern and Continen-

tal had merged, thus triggering the LPPs. Eastern did

not oppose the request for relief from the stay to imple-

ment the first arbitration decision, but did oppose the

supplemental request to commence a second arbitration.

The bankruptcy court lifted the stay for the limited

purpose of formally issuing the arbitration decision in-

terpreting the LPPs, but declined to lift the stay for

the purpose of allowing ALPA to initiate an arbitration

to determine whether a merger had taken place. /n re

Ionosphere Clubs, Inc., supra, 105 B.R. 765. The court

reasoned that issues raised in the arbitration would

duplicate efforts being made by the examiner it had

appointed. /a. at 771.

(B)

Wet-leasing refers to the practice of one airline leas-

ing aircraft and crews from another airline. The collec-

tive bargaining agreement prohibited Eastern from en-

gaging in this practice. It required Eastern to employ

ALPA pilots on the Eastern pilot’s system seniority list

to perform its flying. In August 1989, since its pilots

were on strike and replacement pilots were still being

trained, Eastern entered into wet-lease contracts with

Continental.

On September 1, 1989, ALPA commenced an action in

the Southern District of Florida (the Florida action),

seeking to enjoin the wet-leasing as violative of the

collective bargaining agreement and of the RLA. The

district court set the case on an expedited discovery

schedule. On September 25, 1989, Eastern commenced

an adversary proceeding in the bankruptcy court, seek-

ing to enjoin ALPA from prosecuting the Florida action.

In its complaint, Eastern alleged that its wet-lease con-

tracts were reasonably necessary to its continued opera-

tion during the strike.

The bankruptcy court held that the Florida action vio-

lated the provisions of the automatic stay, specifically,

11 U.S.C. § 362(a) (3) (1988), which provides for a stay

of “any act ... to exercise control over property of the

estate.” Jn re lonosphere Clubs, supra, 105 B.R. at 779.

The court determined that Eastern’s actions were “rea-

sonably necessary” to its continued operation during the

strike and were protected under the doctrine announced

in Brotherhood of Ry. & S.S. Clerks v. Florida East

Coast Ry., 384 U.S. 238, 248 (1966). In re Ionosphere

Clubs, supra, 105 B.R. at 780. Finally, the bankruptcy

court enjoined further prosecution of the Florida action

pursuant to its powers under § 105(a). Jd.

(C)

ALPA appealed both bankruptcy court orders to the

district court pursuant to 28 U.S.C. $158ia) (1988).

The appeal frora the LPP decision was assigned to Judge

Sweet. The appeal from the wet-lease decision was as-

signed to Judge Leval. Subsequently, the two appeals

were consolidated before Judge Sweet.

On April 10, 1990, the district court entered its opin-

ion and order, reversing the orders of the bankruptcy

—————————

court in both cases. Jn re lonosphere Clubs, Ine., 114

B.R. 379 (S.D.N.Y. 1990). The district court reasoned

that $1113 of the Bankruptcy Code was intended to be

the “exclusive . . . means in the Bankruptcy Code by

which a debtor could modify or reject its collective bar-

gaining contract obligations.” /d. at 396. The court con-

ciuded that application of the automatic stay to bar en-

forcement of a collective bargaining agreement outside

the bankruptcy court was precluded by § 1113(f), which

provides that no provision of the Bankruptcy Code other

than $1113 should be construed to permit a_ trustee

unilaterally to alter or terminate a collective bargaining

agreement. Jd. at 400.

This appeal followed.

Il.

Initially, we set forth our standard of review. The

district court order is subject to plenary review. Jn re

Hanratty, 907 F.2d 1418, 1423 (3 Cir. 1990) ; In re John-

son, 901 F.2d 513, 516 (6 Cir. 1990); Zn re Manville

Forest Prods. Corp., 896 F.2d 1384, 1388 (2 Cir. 1990).

“This court exercises the same review over the district

court’s decision that the district court may exercise [over

the bankruptcy court’s decision].” Brown v. Pennsyl-

vania State Employees Credit Union, 851 F.2d 81, 84

(3 Cir. 1988). Accordingly, we review conclusions of

law de novo, and findings of fact under a clearly erron-

eous standard. Jn re Manville, supra, 896 F.2d at 1388;

Brown, supra, 851 F.2d at 84.

IIT.

| This appeal raises the question of the effect of § 1113

| of the Bankrupicy Code on the application of the auto-

matie stay provisions of § 362 of the Bankruptcy Code

to non-bankruptey proceedings to enforce a _ collective

bargaining agreement. Resolution of this dispute re-

quires us to consider the intent of Congress in enacting

these sections.

ES ————————

(A)

Section 362 of the Bankruptcy Code provides that the

filing of a petition in bankruptcy automatically stays

certain actions directed against the debtor or against the

debtor’s property. 11 U.S.C. § 362(a) (1988). The auto-

matie stay provisions promote two principal purposes of

the Bankruptcy Code. First, the automatic stay “provides

the debtor with ‘a breathing spell from his creditors.’ ”

Teachers Ins. & Annuity Ass’n of America Vv. Butler, 803

F.2d 61, 64 (2 Cir. 1986) (quoting legislative history) ;

In re Petrusch, 667 F.2d 297, 299 (2 Cir. 1981) (same),

cert. denied, 456 U.S. 974 (1982). In addition, the auto-

matic stay allows the bankruptcy court to centralize all

disputes concerning property of the debtor’s estate in

the bankruptcy court so that reorganization can proceed

efficiently, unimpeded by uncoordinated proceedings in

other arenas. The Bankruptcy Code “provide[s] for cen-

tralized jurisdiction and administration of the debtor, its

estate and its reorganization in the Bankruptcy Court,

and [this policy| is effectuated by Sections 362 and 105

of the Code.” In re Chateaugay Corp., 109 B.R. 613, 621

(S.D.N.Y. 1990); see also Hunt v. Bankers Trust Co.,

799 F.2d 1060, 1069 (5 Cir. 1986); Holland America

Ins. Co. Vv. Succession of Roy, 777 F.2d 992, 995 (5 Cir.

1985).

(B)

We turn next to $1113 of the Bankruptcy Code. Our

discussion of that section must begin with the Supreme

Court’s decision in National Labor Relations Bd. vV.

Bildisco & Bildisco, 465 U.S. 513 (1984). In Bildisco, the

Court held, in part, that the filing of a petition in bank-

ruptey rendered collective bargaining agreements unen-

forceable. Id. at 532. The debtor, therefore, could termi-

nate unilaterally the collective bargaining agreement or

alter its provisions prior to seeking bankruptcy court ap-

proval for rejection of an executory contract under

§365(a). Id. at 533-34,

In response to Bildisco, Congress enacted § 1113 of the

Bankruptey Code as part of the Bankruptcy Amendments

and Federal Judgeship Act of 1984 (“BAFJA’’), Pub.

L. No. 98-353, 98 Stat. 333, 390-91 (1984). Section 1113

governs the means by which a debtor may assume, reject

or modify its collective bargaining agreement. 11 U.S.C.

$1113(a), (b) and (e) (1988). It ensures that the

debtor attempt to negotiate with the union prior to seek-

ing to terminate a collective bargaining agreement.

§ 1113(b). In the event such negotiations fail, it deline-

ates the standard by which an application by the debtor

to terminate the collective bargaining agreement is to be

judged by the bankruptcy court and establishes a time

frame in which this determination is to be made. 11

U.S.C. §1113(¢c), (d) (1988). Subsection (f) provides:

“No provision of {the Bankruptcy Code] shall be

construed to permit a trustee to unilaterally termi-

nate or alter any provisions of a collective bargain-

ing agreement prior to compliance with the provi-

sions of [section 1113].”

11 U.S.C. § 1113 (f) (1988).

In discerning Congress’ intent in enacting § 1113, we

look first to the language of the statute. United States v.

Bonanno Organized Crime Family of La Cosa Nostra,

879 F.2d 20, 21 (2 Cir. 1989). Subsection 1113/a) pro-

vides that a debtor “may assume or reject a collective

bargaining agreement only in accordance with the provi-

sions of [section 1113].” Subsection 1113(f) evinces an

intent that other previsions of the Bankruptcy Code are

inoperable to the extent that they allow a debto~ to by-

pass the requirements of § 1113. The language of the

statute indicates that Congress intended § 1113 to be the

sole method by which a debtor could terminate or modify

a collective bargaining agreement and that application of

other provisions of the Bankruptey Code that allow a

debtor to bypass the requirements of § 1113 are pro-

hibited.

10a

This conclusion is supported by the legislative history

of § 1113. There are no committee reports accompanying

the enactment of § 1113. We look therefore to statements

made by sponsors of the legislation on the floor of Con-

gress for an expression of legislative intent. E.g., Regents

of the University of California v. Public Employment Re-

lations Bd., 485 U.S. 589, 595-97 (1988); North Haven

Bd. of Educ. v. Bell, 456 U.S. 512, 527 (1982). In sup-

port of the legislation, Senator Packwood, one of its

sponsors, stated:

“The amendments also prohibit the trustee from uni-

laterally altering or terminating the labor agreement

prior to compliance with the provisions of the section.

This provision encourages the collective bargaining

process, so basic to federal labor policy. The provi-

sion overrules the 5-4 portion of the Supreme Court’s

Bildisco decision and means that the 'abor contract

is enforceable and binding on both parties until a

court approved rejection or modification.”

130 Cong. Rec. S8898 (daily ed. June 29, 1984).

Finally, the context in which § 1113 was enacted sup-

ports our conclusion. It is not disputed that § 1113 was

enacted as the legislative response to the Supreme Court’s

decision in Bildisco. In re Unimet Corp., 842 F.2d 879,

882 (6 Cir.), cert. denied, 488 U.S. 828 (1988); Truck

Drivers Local 807 v. Carey Transp., Inc., 816 F.2d 82,

88 (2 Cir. 1987); In re Century Brass Prods., Ilvc., 795

F.2d 265, 272 (2 Cir. 1986). It stands to reason, there-

fore, that the events that took place in Bildisco are repre-

sentative of the ill that Congress sought to cure in enact-

ing § 1113.

In Bildisco, a debtor ignored “‘its obligations under the

collective-bargaining agreement, including the payment

of health and pension benefits and the remittance to the

Union of dues collected under the agreement ... [and]

refused to pay wage increases called for in the collective-

bargaining agreement.” Bildisco, supra, 465 U.S. at 518.

Those alterations were made prior to seeking relief from

————————— ee ee

—

lla

those obligations in the bankruptcy court and absent nego-

tiation with the union.

“Section 1113(f) reverses that part of Bildisco &

Bildisco which held that a trustee or debtor in pos-

session was not legally bound to a collective bargain-

ing agreement subsequent to the filing date and prior

to the court determination of the application for au-

thority to reject such agreement. The trustee or

debtor in possession must adhere to the terms of the

collective bargaining agreement unless the court ap-

proves the application for rejection pursuant to sec-

tion 1113(¢c) or grants interim relief under section

1113/e).”

5 Collier on Bankruptcy, 1113.01 at 1113-14 (15th ed.

1990).

We conclude, from the language of the statute, state-

ments made by the sponsors of the legislation, and the

context in which it was enacted, that Congress intended

that a collective bargaining agreement remain in effect

and that the collective bargaining process continue after

the filing of a bankruptey petition unless and until the

debtor complies with the provisions of $1113. E.g., In

re Unimet Corp., supra, 842 F.2d at 884 (“section 1113

unequivocally prohibits the employer from wnilaterally

modifying any provision of the collective bargaining

agreement”); In ve Century Brass Prods., supra, 795

F.2d at 272 ($1113 “created an expedited form of col-

lective bargaining with several safeguards desi. xed to

insure that employers did not use Chapter 11 as medi-

cine to rid themselves of corpcrate indigestion”); In re

Mile High Metal Sys., Inc., 51 B.R. 509, 510 (Bankr. D.

Colo. 1985) (“[o]ne of the primary purposes of [section

1113] was to emphasize the private collective bargaining

process in an effort to avoid recourse to the bankruptcy

court”).

We construe subsection 1113(f) quite literally. We

hold that it was meant to prohibit the applicaetion of any

other provision of the Bankruptcy Code when such ap-

12a

plication would permit a debtor to achieve a unilateral

termination or modification of a collective bargaining

agreement without meeting the requirements of § 1113.

(C)

We consider, on the instant appeal, a very specific

question, i.e., whether Congress intended in enacting

§ 1113(f) to preclude the application of the automatic

stay provisions of § 362 to any dispute concerning a col-

lective bargaining agreement absent compliance with the

provisions of § 1113. We find no evidence that Congress

had that specific intent.

Section 1113(f) is circumstance specific rather than

section specific. Congress did not choose to direct § 1113

(f) at any specific provision whose application it deemed

would always permit a debtor vnilaterally to alter a col-

lective bargaining agreement. Rather, § 1113(f) pre-

sumes a particularized determination in any circum-

stance as to whether the application of another provision

of the Bankruptcy Code will permit a debtor unilaterally

to terminate or alter a collective bargaining agreement.

If Congress had intended to preclude application of the

automatic stay to any dispute involving a collective bar-

gaining agreement, it could have excepted explicitly pro-

ceedings to enforce a collective bargaining agreement

from the automatic stay provisions. 11 U.S.C. § 362(b)

(1988). Indeed, in enacting the legislation that included

§ 1113, Congress added two exceptions to the automatic

stay. BAFJA, Pub. L. No. 98-353, 98 Stat. 333, 365, 371

(1984) (11 U.S.C. § 362(b) (7), (10) (1988)). More-

over, other sections of the Bankruptcy Code explicitly

state that § 362 is inapplicable. F.g., 11 U.S.C. § 1110

(a) (1988) (right of secured creditor with purchase

money security interest in aircraft or its parts not sub-

ject to § 362); 11 U.S.C. § 1168 (1988) (right of secured

creditor with purchase money security interest in rolling

stock equipment or accessories used on such equipment

not subject to § 362).

m 1

13a

Since we discern no congressional intent on the spe-

cific issue before us, our analysis is governed by two

rules of statutory construction. The first encourages

consistent interpretations of statutes so as to give the

fullest effect to congressional intent. United States v.

Lopez-Cavasos, 915 F.2d 474, 479 (9 Cir. 1990); Strobl

v. New York Mercantile Exchange, 768 F.2d 22, 30 (2

Cir.), cert. denied, 474 U.S. 1006 (1985). “‘|WJIhen

two statutes are capable of co-existence, it is the duty

of the courts ... to regard each as effective.’” Radzan-

ower V. Touche Ross & Co., 426 U.S. 148, 155 (1976)

(citation omitted). The second instructs us that, when

two statutes are in irreconcilable conflict, we must give

effect to the most recently enacted statute since it is the

most recent indication of congressional intent. /d. at

154.

We agree with the district court’s conclusion that, to

the extent the purpose of the automatic stay is to give

the debtor a “breathing spell,” it cannot be reconciled

with £ 1113, which provides the sole method by which a

debtor may obtain a “breathing spell” from its obliga-

tions under a collective bargaining agreement. Jn re

Ionosphere Clubs, supra, 114 B.R. at 397. Were that the

only purpose of the automatic stay, we would be inclined

to affirm the district court’s thorough opinion in its

entirety.

The automatic stay, however, also allows the bank-

ruptey court to protect its jurisdiction over property of

the debtor’s estate by ruling on the appropriate manner

and forum in which such disputes should be resolved. We

previously have recognized the importance of that policy

in the reorganization proceedings. Bohack Corp. V.

Borden, Inc., 599 F.2d 1160, 1165 (2 Cir. 1979). In view

of the importance of that policy, we conclude that a

bright line rule precluding the application of the auto-

matic stay to any situation involving a collective bar-

gaining agreement was not intended by Congress.

Rather, we believe that a case by case adjudication is

l4a

preferable. We will give effect to the automatic stay to

the extent that its application is not in irreconcilable *

conflict with § 1113.

We hold, therefore, that § 1113(f) precludes applica-

tion of the automatic stay to disputes involving a collec-

tive bargaining agreement only when its application

allows a debtor unilaterally to terminate or alter any

provision of a collective bargaining agreement.

IV.

We turn now to the application of the foregoing prin-

ciples to the disputes at issue in the instant case. We

consider the LPP decision first. Eastern contends that

the district court erred in determining that § 1113(f)

precluded application of the automatic stay to the arbi-

tration that ALPA sought to commence to determine

whether the LPPs in the collective bargaining agreement

had been triggered. We disagree.

Eastern contends that a stay of arbitration does not

deprive a union of a forum in which to enforce the col-

lective bargaining agreement. That srgument ignores

the fact that adjudication of this dispute in the bank-

ruptey court would nullify effectively the arbitration

clause in the collective bargaining agreement and would

substitute the court’s judgment for that of the arbitrator.

The collective bargaining agreement expressly provides

for arbitration as the method of dispute resolution.

“!Slection 1113 unequivocally prohibits the employer

from unilaterally modifying any provision of the collec-

tive bargaining agreement.” i/n re Unimet, supra, 841

F.2d at 884 (emphasis in original). This prohibition

applies to arbitration clauses.

“Tt would be anomaious to find that Congress en-

acted a mandatory procedure for rejecting a collec-

tive bargaining agreement without which the agree-

ment stays in full force and effect, and then to hold

that a previously enacted section of the same statute

15a

—11 U.S.C. § 362, providing for a stay of claims

against a debtor’s estate—automatically invalidates

the arbitration clause of a collective bargaining

agreement... .”

In re Marine Pollution Serv., 88 B.R. 588, 595 (S.D.

N.Y.), rev'd on other grounds, 857 F.2d 91 (2 Cir.

1988).

Application of the automatic stay to ALPA’s attempt

to invoke that provision of the collective bargaining

agreement would allow Eastern unilaterally to alter the

collective bargaining agreement by avoiding its obliga-

tion to arbitrate. Jn re Bob’s Supermarket’s, Inc., 118

B.R. 783, 785-86 (Bankr. D. Mont. 1990); In re Marine

Pollution Serv., Inc., supra, 88 B.R. at 595 (dicta); see

also Haggard, Labor Arbitration and Bankruptcy: A

Trek wmto the Serbonian Bog, 17 Loy. U. Chi. L.J. 171,

187-88 (1986) (“Under section 1113 of the Bankruptcy

Code, a collective bargaining agreement remains in full

force and effect until its rejection is approved by the

bankruptcy judge or other interim relief is allowed.

Thus, the debtor in possession or trustee has the con-

tractual duty to adhere to the substantive provisions of

the agreement and the duty to arbitrate any alleged

breaches of those provisions.”). In this context, applica-

tion of the automatic stay is in irreconcilable conflict

with $ 1113/f), which requires that Eastern seek relief

under the provisions of § 1113 if it wishes to avoid its

obligation to arbitrate labor disputes. Cf. In. re Marine

Pollution Serv., Inc., 89 B.R. 344, 346 (S.D.N.Y. 1988)

(“if the Trustee believes that the threat of slowdowns or

other disturbance is such that he wishes to undo the

arbitration award, he has open to him either a return to

the arbitrator or a rejection of the contract in the man-

ner Congress prescribed in 11 U.S.C. § 1113”). We must

give effect to § 1113(f) as the later expression of con-

gressional intent.

Our holding is consistent with the purpose underlying

: 1113 to the extent that it ensures that the collective

l6a

bargaining process continue unless and until the bank-

ruptey court grants the debtor relief under § 1113. The

federal judiciary and Congress both have recognized the

importance to the collective bargaining process of arbi-

tration. E.g., United Steelworkers v. Warrior & Gulf

Navigation Co., 363 U.S. 574, 578 (1960) (“arbitra-

tion of labor disputes under collective bargaining agree-

ments is part and parcel of the collective bargaining

process itself”); 29 U.S.C. $173(d) (1988) (favoring

method of labor dispute resolution agreed to by parties).

We hold that an arbitration brought pursuant to a

provision in a collective bargaining agreement is not

subject to the automatic stay since its application would

allow a debtor unilaterally to avoid its obligation to

arbitrate. The district court properly reversed the bank-

ruptcy court’s LPP decision.

This brings us to the wet-lease decision. Eastern con-

tends that the district court erred in reversing the bank-

ruptecy court’s determination that the Florida action was

subject to the automatic stay. We agree.

(A)

Unlike the LPP decision, application of the automatic

stay to the action commenced by ALPA in the Southern

District of Florida did not relieve Eastern of the obliga-

tion to participate in the method of dispute resolution

provided for in the collective bargaining agreement. Ad-

judication in the bankruptcy court itself does not vio-

late § 1113(f). When a union seeks judicial enforcement

of a collective bargaining agreement, the purposes behind

$§ 362 and 1113(f) both can be promoted if the dispute

can be adjudicated in the bankruptcy court.

We agree with ALPA’s contention that precluding it

from enforcing the collective bargaining agreement would

render § 1113 illusory since a debtor would have no need

to invoke it. If enforcement is foreclosed, then a union

l7a

has no recourse against unilateral modifications imposed

by a debtor.

The application of $ 362 to a non-bankruptcy judicial

proceeding only forecloses enforcement of the collective

bargaining agreement if it cannot be enforced in the

bankruptcy court. Accordingly, if a union has a proce-

dural mechanism to place the dispute before the bank-

ruptcy court and the bankruptcy court has jurisdiction

to resolve the dispute, enforcement of the collective bar-

gaining agreement is not foreclosed and application of

the automatic siay does not permit a debtor unilaterally

to alter its collective bargaining agreement.

We are not persuaded by ALPA’s fear that the auto-

matic stay may be interpreted to stay all proceedings

against the debtor, even those commenced in the bank-

ruptey court. E.g., In re Coastal Group, Inc., 100 B.R.

177, 178 (Bankr. D. Del. 1989) (pre-petition breach of

contract claim brought as adversary proceeding subject

to automatic stay); Jn re Penney, 76 B.R. 160, 161

(Bankr. N.D. Cal. 1987) (creditor cannot commence

adversary proceeding against debtor in bankruptcy court

for a cause of action that, if commenced in state court.

would violate automatic stay); In re Lessig Constr.,

Inc., 67 B.R. 436, 443-44 (Bankr. E.D. Pa. 1986) (auto-

matic stay applies to bankruptcy proceedings). But see

In re Vylene Enters., Inc., 63 B.R. 900, 905-07 (Bankr.

C.D. Cal. 1986) (automatic stay not applicable to pro-

ceedings seeking injunctive relief commenced in bank-

ruptey court); In re American Spinning Mills, Inc., 43

B.R. 365, 367 (Bankr. E.D. Pa. 1984) (“stay implicitly

does not bar a party from commencing an adversary or

contested proceeding against the debtor under the cap-

tion of the bankruptcy case in the court where the peti-

tion is pending”). The only appropriate purpose that the

stay promotes with respect to collective bargaining agree-

ments is allowing the bankruptcy court to protect its

jurisdiction so that it can proceed efficiently with reor-

ganization. Therefore, § 1113(f) compels the bankruptcy

court to provide relief from the stay pursuant to § 362

184

(d) to hear the dispute itself, to the extent that is nec-

essary, or, in the event that the bankruptcy court deter-

mines that it is not the appropriate forum for the resolu-

tion of such a dispute, to allow the resolution of the dis-

pute to proceed in a non-bankruptcy forum.

Moreover, the fact that the bankruptcy court may not

have jurisdiction to hear every conceivable claim that

might arise from the collective bargaining agreement

does not invalidate our analysis. The relevant inquiry is

whether the bankruptcy court has jurisdiction to hear

the particular dispute at issue. If the bankruptcy court

does have jurisdiction to hear a dispute, it has the power

to take the necessary steps to enforce its resolution. 11

U.S.C. § 105 (1988).

Finally, our concern with a procedural mechanism by

which the union can present the dispute to the bank-

ruptcy court does not foreclose debtor-initiated resolu-

tions of disputes. A situation in which the union could

not bring the dispute before the bankruptcy court and

the debtor chose not to, however, would render the col-

lective bargaining agreement unenforceable. That result

is prohibited by § 1113(f).

(B)

It follows from our preceding analysis that, if the wet-

lease dispute was properly presented to the bankruptcy

court, or could have been, and the bankruptcy court

could exercise jurisdiction over it, application of the

automatic stay was not precluded by § 1113(f). In mak-

ing this determination, we need not decide whether the

bankruptcy court would have jurisdiction to resolve any

dispute arising from the collective bargaining agreement,

but only whether it had jurisdiction to decide this partic-

ular dispute.

Initially, since Eastern brought the merits of the dis-

pute before the bankruptcy court, we need not consider

whether ALPA had a procedural mechanism with which

to place the dispute before the bankruptcy court. We

turn, therefore, to the jurisdiction issue.

19a

In Northern Pipeline Constr. Co. v. Marathon Pipe

Line Co., 458 U.S. 50 (1982), the Supreme Court con-

sidered constitutional restraints on bankruptcy court

jurisdiction. The plurality distinguished those issues “at

the core of the federal bankruptcy power . . . from the

adjudication of state-created private rights.” /d. at 71.

The bankruptcy court can exercise jurisdiction over the

former, but cannot exercise jurisdiction over a state law

contract claim that arose pre-petition. Such a claim can

be adjudicated only in an Article III court.

In response to Marathon, as part of the BAFJA, Con-

gress amended the jurisdictional grant to bankruptcy

courts. Bankruptcy courts may enter “appropriate

orders and judgments” in “core” proceedings. 28 U.S.C.

$ 157(b) (1) (1988). Congress provided a nonexclusive

list of proceedings it deemed to be core. 28 U.S.C.

§$ 157(b) (2) (1988). In addition, a bankruptcy court

can hear non-core proceedings if they are related to the

bankruptcy case and the bankruptcy court submits pro-

posed findings of fact and conclusions of law for review

by the district court. 28 U.S.C. § 157(e) (1) (1988).

“|Blankruptcy jurisdiction [is] to be construed as

broadly as possible within the constitutional constraints

of Marathon.” In re Ben Cooper, Inc., 896 F.2d 1394,

1398 (2 Cir. 1990), vacated on other grounds, 59

U.S.L.W. 3357 (U.S. Nov. 13, 1990); see also In re

Chateaugay Corp., supra, 109 B.R. at 621 (“{t}]he reach

of bankruptcy jurisdiction encompasses all matters the

outcome of which would affect the debtor or its reor-

ganization”). With the foregoing in mind, we consider

whether the wet-lease dispute is a matter concerning the

administration of the estate, justifying bankruptcy juris-

diction. 28 U.S.C. § 157(b) (2) (A) (1988).

The instant dispute involves the effect of the collective

bargaining agreement on a contract entered into post-

petition. ‘“Post-petition contracts with the debtor-in-

possession , . . are integral to the estate administraiion

from the date they are entered into.” In re Ben Cooper,

supra, 896 F.2d at 1399. Although this dispute involves

20a

an alleged breach of the collective bargaining agreement,

rather than an alleged breach of the post-petition con-

tract, the ramifications of the dispute on the administra-

tion of the estate are of sufficient importance to justify

bankruptcy court jurisdiction. F.g., Elsinore Shore

Assocs. V. Local 54 Hotel Employees, 820 F.2d 62, 66

(3 Cir. 1987) (determination of whether underlying

cause of strike was arbitrable justifying Boys Market

injunction against strike was matter concerning admin-

istration of the estate); /nternational Ass’n of Machin-

ists and Aerospace Workers v. Eastern Air Lines, Inc.,

No. 90 Civ. 1204, slip op. at 3-4 (S.D.N.Y. Nov. 7, 1990)

(labor dispute involving union’s conduct during strike

was matter concerning the adminisration of the estate).

We are aware that Congress has expressbed an intent

that district courts, rather than bankruptcy courts, hear

disputes that involve “consideration of both title 11 and

other laws of the United States regulating organizations

or activities affecting interstate commerce.” 28 U.S.C.

§$157(d) (1988). Our holding is net inconsistent with

congressional intent as expressed in that provision,

which provides for mandatory withdrawal of such cases

from the bankruptcy court to the district court. It has

been construed narrowly. “Withdrawal under 28 U.S.C.

$157(d) is not available merely whenever non-Bank-

ruptey Code federal statutes will be considered in the

Bankruptcy Court proceeding, but is reserved for cases

where substantial and material consideration of non-

Bankruptcy Code federal statutes is necessary for the

resolution of the proceeding.” Jn re Ionosphere Clubs,

Inc, 103 B.R. 416, 418-19 (S.D.N.Y. 1989) (footnote

omitted) ; see also In re White Motor Corp., 42 B.R. 693,

700 (N.D. Ohio-1984) (“‘[t]he district court should. . .

not allow a party to use this provision to require with-

drawal where such laws are not material to resolution

of the proceeding’” (quoting legislative history) ).

Eastern’s rights in this dispute are governed by Flor-

ida East Coast, supra. In that case, the Court held that,

een ese

2la

during a strike, a carrier could make unilateral changes

in a collective bargaining agreement without complying

with the terms of the RLA that were reasonably neces-

sary to its continued operation. Florida East Coast,

supra, 384 U.S. at 246-48. Application of that doctrine

does not require the bankruptcy court to engage itself in

the intricacies of the RLA. Resolution of the dispute in

the instant case, therefore, does not demand substantial

consideration of the RLA, but, rather “involves the rou-

tine application of [a] non-Bankruptcy Code federal

statute|].” Zn re lonosphere Clubs, supra, 103 B.R. at

420.

We hold that the bankruptcy court had jurisdiction to

resolve the issues presented by the Florida action.

VI.

We turn next to the propriety of the bankruptcy

court’s exercise of its powers under § 105 to enjoin

ALPA from prosecuting the wet-lease action. Eastern

contends that the district court erred in holding that the

bankruptcy court was precluded by § 1113(f) from issu-

ing an injunction against prosecution of the Florida law-

suit. We agree.

Section 105(a) of the Bankruptcy Code provides that:

“The court may issue any order, process or judgment

that is necessary or appropriate to carry out the provi-

sions of this title.” This power “must and can only be

exercised within the confines of the Bankruptcy Code.”

Norwest Bank Worthington v. Ahlers, 485 U.S. 197, 206

(1988); see also In re Johns-Manville Corp., 801 F.2d

60, 63 (2 Cir. 1986) (“Section 105(a) . . . does not

broaden the bankruptcy court’s jurisdiction”). The

bankruptey court’s equitable powers cannot be exercised

in derogation of other sections of the Bankruptcy Code.

In re Morristown & Erie R.R. Co., 885 F.2d 98, 100

(3-Cir. 1989); In re NWFX, Inc., 864 F.2d 593, 595 (8

Cir. 1989). The district court reasoned that an injune-

22a

tion issued to bar enforcement of a collective bargaining

agreement outside the bankruptcy court would violate

§ 1113. It followed, from the district court’s analysis,

that the bankruptcy court’s equitable powers could not

be used to that end. In re Ionosphere Clubs, supra, 114

B.R. at 404-05.

Since § 105, like § 362, is a means by which the bank-

ruptey court can protect its jurisdiction, Jn re Chateau-

gay Corp., supra, 109 B.R. at 621, we hold that its

application is not always inconsistent with § 1113. We

hold that the bankruptcy court’s exercise of its equitable

powers pursuant to § 105 to enjoin enforcement of a

collective bargaining agreement is subject to the same

considerations set forth above for the application of

§ 362.

VIL.

ALPA contends that the Norris-LaGuardia Act pro-

hibited the bankruptcy court from enjoining the Florida

action and raises several issues concerning the merits of

the wet-lease decision. The district court did not reach

these issues since it decided that application of the auto-

matic stay violated §1113(f). In light of our contrary

holding, we remand the case to the district court for

consideration of ALPA’s claims.

VIII.

To summarize:

We hold that application of the automatic stay provi-

sions of § 362 of the Bankruptcy Code is precluded by

§1113(f) only to the extent that they permit a debtor

unilaterally to terminate or alter a collective bargaining

agreement. With respect to the LPP decision, we 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 its obligation to arbitrate. We hold that the

hankruptcy court may stay a non-bankruptcy judicial

23a

proceeding to enforce a collective bargaining agreement

if the union can bring the dispute before the bankruptcy

court and the bankruptcy court has jurisdiction to re-

solve it. With respect to the wet-lease decision, we hold

that the bankruptcy court had jurisdiction to resolve

the issues raised by the Florida action and, therefore, the

stay of that action was not precluded by § 1113/f).

Finally, we hold that section 1113(f) did not prohibit

the bankruptcy court from issuing an injunction against

prosecution of the Florida action. We remand the case

to the district court for further consideration of the wet-

lease decision.

Affirmed in part, reversed in part and remanded.

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 agree-

ment is violative of $1113(f) of the Code. I respect-

fully disagree with my colleagues insofar as they con-

clude that $1113(f) does not bar an automatic stay of

the Florida action, the injunction issued by the Bank-

ruptecy 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 be-

tween Eastern and ALPA provides:

that all present or future flying including flight

training (‘except for initial factory-conducted train-

ing in newly purchased equipment), revenue flying,

ferry flights, charters and wet-leases performed in

or for the service of Eastern Air Lines, Inc., shall

24a

be performed by pilots whose names appear on the

then-current Eastern Air Lines’ System Seniority

List. +

In apparent violation of the foregoing provision, East-

ern entered into wet-leasing agreements whereby it

leased aircraft with crews from Continental while East-

ern pilots were on strike. As a debtor in a Chapter 11

reorganization, however, Eastern may not “unilaterally

. alter any provisions of a collective bargaining agree-

ment” 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 agree-

ment upon a showing that modifications in the agree-

ment “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 opera-

tions. Eastern made no effort to negotiate with ALPA

before making its arrangements with Continental. As a

consequence, ALPA sought in the district court in Flor-

ida 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 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 provi-

sions 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

25a

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 deter-

mining that “[t|hese wet-leases were, and are, reason-

ably necessary to Eastern’s efforts to rebuild its opera-

tions.” In re lonosphere Clubs, Inc., 105 Bankr. 773,

775 (S.D.N.Y. 1989). The Bankruptcy Court also found

that “|bly proceeding to enjoin Eastern from continu-

ing with those [wet-lease] operations, ALPA would dis-

rupt Eastern’s planned flight operations causing the es-

tate to suffer irreparably by the substantial erosion of

Eastern’s operations.” Jd. While these determinations

may be taken as a finding that elimination of the wet-

leasing prohibition is a modification “necessary to per-

mit the reorganization of the debtor,” 11 U.S.C. § 1113

(b)(1)(A), there was no compliance with the statu-

tory 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 Yowre 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, East-

ern is able to avoid compliance with a carefully-drawn

statute enacted by Congress to govern labor-manage-

ment relations in a bankruptcy reorganization. As noted

by my colleagues, the statute was designed to overcome

the Supreme Court’s decision in National Labor Rela-

tions Board v, Bildisco & Bildisco, 465 U.S. 513, 528-29

26a

(1984), which allowed a debtor unilaterally to terminate

or alter a collective bargaining agreement prior to seek-

ing bankruptcy court approval under § 365(a) for re-

jection of an executory 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 S. Ct. 949 (1986).

astern simply cannot be relieved of its obligation to

avoid wet-leasing unless it follows the step-by-step pro-

cedure 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). Kastern must provide ALPA with information

relevant to an evaluation of the proposal. /d. § 1113

(by (1)(B). It must hold meetings with ALPA in a

good faith effort to reach a mutually satisfactory modi-

fication. /d. $1113(b)(2). It may file an application

for rejection only after the modification proposal has

been made, discussed and rejected. /d. § 1113/(d) (1).

The court then will decide, after a hearing on notice to

interested parties, whether to reject the agreement. /d.

Kastern 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.” Jd. § 1113(¢).

In making its decision, “the court must consider whether

rejection would increase the likelihood of successful re-

organization.” Truck Drivers Local 807 v. Carey

Transp., Inc., 816 F.2d &2, 89 (2d Cir. 1987) ; see also In

re Royal Composing Room, Inc., 62 Bankr. 403 (S.D

N.Y.), aff'd, 846 F.2d 345 (2d Cir. 1988), cert. denied,

109 S$. Ct, 1529 (1989). It is only after all the pre-

27a

liminary 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 bar-

gaining 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 coun-

tenance this conduct, for it precludes resolution of the

wet leasing dispute through the preferred process of

collective bargaining.

[ 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 col-

lective bargaining agreement can somehow be enforced

in a bankruptcy court, then the automatic stay provi-

sions 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 Bank-

ruptcy 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 auto-

matic 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

sankruptcy 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,

28a

APPENDIX B

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

At a stated Term of the United States Court of Ap-

peals for the Second Circuit, held at the United States

Courthouse in the City of New York, on the twenty-first

day of December one thousand nine hundred and ninety.

Present: HON. ROGER J. MINER, C.J.

Hon. WILLIAM H. TIMBERS, C.J.

HON. JOHN E. SpPrRIzzo, D.J.*

Circuit Judges,

90-5033, 90-5035

IN RE: IONOSPHERE CLUBS, INC. and

EASTERN AIRLINES, INC.,

Debtors.

MARTIN R. SHUGRUE, JR., AS CHAPTER 11

TRUSTEE FOR EASTERN AIRLINES, INC.,

ae Appellant,

AIR LINE PILOTS ASSOCIATION, INTERNATIONAL,

Appellee.

Appeal from the United States District Court

for the Southern District of New York

* Hon. John E. Sprizzo, US District Judge for the Southern Dis-

trict of New York, sitting by designation.

29a

This cause came on to be heard on the transcript of

record from the United States District Court for the

Southern District of New York, and was argued by

counsel.

ON CONSIDERATION WHEREOFP, it is now hereby

ordered, adjudged, and decreed that the Order of said

District Court be and it hereby is affirmed in part. re-

versed in part and remanded to the said District Court

for further proceedings in accordance with the opinion

of this Court.

ELAINE B. GOLDSMITH

Clerk

By /s/ Edward J. Guardaro

EDWARD J. GUARDARO

Deputy Clerk

Issued as Mandate. Jan. 11, 1991

30a

APPENDIX C

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

89 Civ. 6989 (RWS)

89 Civ. 7563 (RWS)

IN RE IONOSPHERE CLUBS, INC. and

MASTERN AIR LINES, INC.,

Debtors.

/.1R LINE PILOTS ASSOCIATION INTERNATIONAL,

Appellant,

—against—

EASTERN AIR LINES, INC.,

Appellee.

OPINION

Sweet, D.J.

The Air Line Pilots Association, International

(“ALPA”) has appealed from two decisions of the Bank-

ruptcy Court. The first decision denied its application

for relief from the automatic stay to permit it, and to

require respondent Eastern Airlines, Inc. (‘Eastern’),

to submit to arbitration a dispute over whether there has

been a merger of the operations or facilities of Eastern

and Continental Air Lines Inc (“Continental”). A find-

ing that such a merger has occurred would trigger labor

protective provisions, including certain seniority rights,

contained in the collective bargaining agreement between

ALPA and Eastern.

The second decision, made upon Eastern’s application,

enjoins ALPA from proceeding with a lawsuit initiated

2 Peo

3la

in the federal court in the Southern District of Florida.

ALPA alleged in that action that certain leases of air-

crafts, complete with crews, that Eastern had entered

into with Continental (the ‘‘wet-leases’”) violated the col-

lective bargaining agreement between it and Eastern.

ALPA sought by the lawsuit to enjoin Eastern from

continuing with “wet-leasing.”

Both appeals present for resolution whether the Bank-

ruptcy Code’s automatic stay provision governs proceed-

ings brought against a debtor-in-possession to enforce a

collective bargaining agreement where the debtor has yet

to obtain or seek an order under section 1113 of the

Bankruptcy Code altering or relieving it of its obliga-

tions under such agreement. The conclusion, as set out

below, is that enforcement of the stay under the circum-

stances here would circumvent the procedures imple-

mented by Congress when it passed section 1113. There-

fore, the orders of the Bankruptcy Court are reversed.

The Parties

ALPA is an unincorporated labor organization and the

authorized collective bargaining representative under the

Railway Labor Act (“RLA”), 45 U.S.C. section 151 ef

seq., for all airline pilots (captains, first officers, and

second officers) employed by Eastern. ALPA represents

the Eastern pilot group through a coordinating council

known as the Eastern Master Executive Council

(“MEC”’).

Eastern is a corporation engaged in the business of

providing air transportation service in interstate and

foreign commerce and is a “carrier” subject to the RLA,

45 U.S.C. section 151, First. Eastern’s principal place

of business and its corporate headquarters are located in

Miami, Florida. Its common stock is owned by Texas

Air Corporation (“Texas Air’), which directs, controls,

and manages the operations of Eastern and also those of

Continental Air Lines, Inc. (‘Continental’). Frank

32a

Lorenzo is Chairman of the Board of Directors for Texas

Air, Eastern and Continental. Texas Air, in turn, is

controlled by Jet Capital Corporation (“Jet Capital’).

Lorenzo owns approximately 50.7% of the stock of Jet

Capital and is its controlling stockholder.

The Official Committee of Unsecured Creditors (the

“Committee”) consists of numerous creditors of Eastern

who have filed claims in the Chapter 11 proceeding, in-

cluding ALPA. The Committee opposes A!.PA’s appeal.

The Appeals

In In re Ionosphere Clubs, Inc., No. 89 B. 10448

(BRL) (Bankr. S.D.N.Y. September 11, 1989) (‘“Tono-

sphere I”), the Honorable Burton R. Lifland determined

that the automatic stay of the Bankruptcy Code, 11

U.S.C. § 362, should not be lifted to permit ALPA to

arbitrate, under either the auspices of the National

Mediation Board or the System Board of Adjustment, a

dispute over the interpretation and application of the

labor protective provisions embodied in ALPA’s and

Eastern’s collective bargaining agreement. ALPA ap-

pealed that decision, and argument was heard on De-

cember 8, 1989. Post-argument submissions occasioned

by a decision of this court issued on January 24, 1990,

were made by the parties in late January and early

February, 1990.

In Eastern Air Lines Inc. v. Airlines Pilots Associa-

tion, International, No. 89-6143A (BRL) (Bankr.

S.D.N.Y. October 4, 1989) (‘“Zonosphere II”), Judge Lif-

land determined that the automatic stay barred ALPA

from proceeding with a lawsuit it had filed in federal

court in Florida against Eastern, by which ALPA sought

to enjoin Eastern from engaging in the practice of wet-

leasing. ALPA contended in that suit that Eastern’s

wet-leasing violated the terms of the collective bargaining

agreement and the Railway Labor Act. Judge Lifland

granted Eastern’s application to enjoin ALPA from pros-

ecuting the action. ALPA appealed that decision and,

following extensive briefing, argument was heard on

March 16, 1990.

This court has jurisdiction over these appeals under

28 U.S.C. § 158(a).

Factual Background to the Appeals

A. The Contractual Relationship Between the Parties

Eastern and ALPA, as authorized representatives of

the Eastern pilots, have for several years been parties to

collective bargaining agreements governing the terms and

conditions of pilot employment at Eastern. By letter of

agreement dated March 20, 1982, ALPA, and Eastern

established a System Board of Adjustment (‘System

Board”) of four members, two company members and

two union members, to determine disputes arising under

their labor contracts. The operation of such boards is

contemplated under Title II of the Railway Labor Act

(“RLA’’), 45 U.S.C. § 184. Under the terms of the ar-

rangement, in the event that the four members of tlie

System Board are unable to reach agreement within 30

days from the final submission of a grievance, either

party may notify the System Board that a fifth member

of the System Board is desired. The System Board there-

upon selects a neutral from the panel of arbitrators

(agreed to by both the parties) listed in the System

Board Agreement. The selected neutral acts as the

Chairman of the five member Board. A decision by a

majority of the five member System Board is final and

binding on both parties. In accordance with the RLA,

the Letter Agreement provided that the System Board

would have jurisdiction to resolve all disputes “growing

out of grievances or out of interpretation or application

of any of the terms of the Pilots’ Agreement.”

In 1986, Eastern and ALPA became parties to a new

collective bargaining agreement dated February 23, 1986

34a

(the “Eastern/ALPA Agreement” or “Agreement’’).

That Agreement was reached in the early morning hours

of February 24, 1986, after months of intensive negotia-

tions, during which Eastern was simultaneously bargain-

ing with the International Association of Machinists

(“IAM”) and, against the possibility the labor talks

would not result in favorable terms, negotiating terms of

acquisition with Texas Air. In its entirety, the Eastern

ALPA Agreement that was concluded consisted of four

handwritten pages. In addition to the phrases represeit-

ing new areas of agreement, the handwritten pages in-

corporated by reference the parties’ expired agreement.

Although able to reach this Agreement with ALPA,

Eastern was unable to come to terms with the IAM, set-

tlement with which Eastern concluded was essential to

its survival in its then existing form. Eastern thereafter

was acquired by Texas Air.

Eastern and ALPA negotiators reconvened several

days after concluding that labor contract in an effort to

expand the eryptic references in the Agreement to en-

compass all material terms of the new areas addressed.

The parties were unable to agree on the material terms

of six phrases, one of which was the provision phrase

which referred to Labor Protective Provisions (“LPPs’’).

That provision, in its entirety, read: “LPP’s & Take-

over: Similar to TWA—need to work out between EAL

ALPA legal counsel.”’

B. The LPP Grievance, the Strike and the Bank-

ruptcy Filing

On August 6, 1986 ALPA filed a grievance in connec-

tion with the disagreement over the LPP provision and

submitted the grievance to the System Board on Septem-

ber 5, 1986. This grievance was designated as Eastern

ALPA System Board of Adjustment Arbitration Case

No. 1-86 (“Arbitration Case No. 1-86”). Three months

prior to then, on June 10, 1986, Eastern had filed suit in

30a

the Southern District of Florida to compel ALPA to re-

sume bargaining on the LPP provision rather than arbi-

trate. After substantial litigation between Eastern and

ALPA regarding the enforceability of the Eastern/ALPA

Agreement, Eastern and ALPA were directed to submit

the LPP controversy to arbitration. Eastern Air Lines

Inc. v. ALPA, 679 F. Supp. 947 (S.D.Fla. 1987), aff'd,

861 F.2d 1546 (11th Cir. 1988). In accordance with that

determination, the grievance was submitted to the Sys-

tem Board. Arbitrator Frank Elkouri (the “Arbitra-

tor’), a well-known expert in the field and the author of

How Arbitration Works, was appointed as the fifth

Board member and chairperson.

On April 19, 1988 hearings began on Arbitration Case

No. 1-86. The purpose of that arbitration was to have

the System Board define for the parties the precise terms

of the labor protective provisions (““LPPs”). Eight days

of hearings and substantial post-arbitration briefs spread

over eight months. On February 7, 1989 by executive

session of the System Board, it was agreed that the Arbi-

trator would proceed to prepare a proposed decision, fol-

lowing distribution of which the other Board members

would have two weeks to review and, if desired, to re-

quest another executive session at which to modify or fi-

nalize the decision.

On March 4, 1989 Eastern’s aircraft mechanics and

ground service workers represented by IAM began a

primary strike. ALPA agreed that its members would

honor the IAM picket lines and strike Eastern in sym-

pathy with the IAM. That same day, Arbitrator Elkouri

mailed out his proposed decision to the members of the

System Board.

On March 9, 1989, Eastern filed a petition in the

Bankruptey Court for this District under Chapter 11 of

the Bankruptey Code. The prior day, March 8, 1989, Ar-

bitrator Elkouri issued a signed decision in Arbitration

Case No. 1-86, which, contrary to the previously agreed

36a

upon procedure, became the Board’s majority decision the

next day upon being signed by the two ALPA System

Board members. In the decision, as forecasted by his

draft opinion, the Arbitrator concluded that the parties’

cryptic Janguage evinced an agreement to incorporate

into their collective bargaining agreement sections 2(a),

3 and 13 of the LPPs applied to airline employees by the

Civil Aeronautics Board (“CAB”) in the Allegheny-

Mohawk airline merger in 1972. See Allegheny Mohawk

Merger, 59 C.A.B. 22 (1972).

Pursuant to this decision, in March 1989 ALPA re-

quested that Lorenzo meet with the pilots to discuss in-

tegration of the Eastern and Continental seniority lists.

ALPA asserted such integration was required under sec-

tions 2(a) and 3 of the LPPs, which provides that if

Eastern and Continental “unify, consolidate, merge or

pool in whole or in part their separate airline facilities

or any of the operations or services previously performed

by them” in a manner affecting the seniority rights of

pilots, “provisions shall be made for the integration of

seniority lists in a fair and equitable manner.” The

LPPs further provide in section 13 that any dispute

arising

{[wlith respect to the protections provided herein,

which cannot be settled by the parties within 20 days

after the controversy arises, [] may be referred by

any party to an arbitrator selected from a panel of

seven names furnished by the National Mediation

Board for consideration and determination. ... Ex-

pedited hearings and decisions wil be expected and a

decision shall be rendered within 90 days after the

controversy arises. ...

ALPA contended that by virtue of a number of asset

transactions, Eastern had merged certain of its opera-

tions and or facilities with Continental within the mean-

ing of section 2(a) of the LPPs. When Lorenzo and

Eastern denied ALPA’s request to discuss integration of

on. inal

37a

the seniority list under the LPPs, ALPA requested that

the grievance be submitted to arbitration pursuant to

section 13 of the LPPs. Eastern also declined that re-

quest.

C. The LPP Proceedings Before the Bankruptcy

Court

On July 21, 1989, ALPA sought the entry of an or-

der by the Bankruptcy Court declaring that the auto-

matic stay provided by Bankruptcy Code section 362(a)

did not apply to Arbitrator Elkouri’s decision in Arbitra-

tion Case No. 1-86, because the decision had been final-

ized prior to the bankruptcy filing, or alternatively, for

relief from the automatic stay to allow the System Board

to complete its proceedings in Arbitration Case No.

1-86 by formally issuing the Elkouri decision. Eastern

and the Committee did not oppose the lifting of the stay

for the limited purpose of finalizing Elkouri’s decision.

ALPA simultaneously sought relief from the automatic

stay to commence’ a new arbitration proceeding to “‘imple-

ment” the Elkouri decision, a request which Eastern and

the Committee did oppose, and, as noted, which Eastern

previously had rejected. The purpose of the proposed

arbitration, ALPA indicated, was to determine whether

the acquisition of Eastern by Texas Air, and the occur-

rence of various pre-petition “asset transactions” among

Texas Air, Eastern and Continental, constituted a “mer-

ger,”’ as that term is defined in section 2(a) of the LPPs,

so as to trigger the LPPs. If so, ALPA contended it

would be entitled to damages, and more significantly, to

the merger or “integration” of the pilot workforces of

Continental and Eastern. The Bankruptcy Court, after

briefing, held a hearing on August 14 on ALPA’s motion

to lift the automatic stay.

On September 11, 1989, the Bankruptey Court issued

its decision holding that ALPA “failed to show cause or

special circumstances” as required by section 362(d) (1)

38a

warranting relief from the automatic stay, except to per-

mit formal entry of the Elkouri award. Jonosphere I,

slip op. at 13.

The Court found that permitting an extensive arbitra-

tion over whether the pre-petition transaction between

Continental and Eastern triggered the contractual LPPs

would “usurp the bankruptcy court’s critical role in the

reorganization proceedings, affect special bankruptcy in-

terests, and thwart the goal of judicial speed and econ-

omy” necessary to rehabilitate Eastern, id. at 14, by alien-

ating determination of an issue that may lie at “the very

heart” of Eastern’s reorganization effort. Jd. at 15.

The Bankruptcy Court found that the same asset trans-

actions were the subject of the ongoing investigation by

an independent examiner and had already been the sub-

ject of the. National Mediation Board’s investigation in

the pending (and, according to the Court, stayed) single

carrier proceeding.’ Jd. The Bankruptcy Court also spe-

cifically found that the new arbitration proceeding would

require “great expenses” of money and time, and might

result, contrary to ALPA’s assurances, in a “substantial

monetary award.” Jd. at 16. The Court concluded that

the potential for substantial prejudice to the debtor’s

estate militated against granting the relief sought by

(EPA,

10On ree sat cage ALPA had filed a motion pursuant to Bank-

ruptcy Code Section 1104(a) seeking the appointment of a Chapter

11 operating trustee. In support of its motion, ALPA cortended

that certain pre-petition asset transactions constituted mismanage-

ment of Eastern. In response to ALPA’s allegations, and at the

request of Eastern, the Bankruptcy Court appointed an independ-

ent examiner (the “Examiner’), agreed to by all parties in interest

including ALPA, to conduct an investigation into ALPA’s claims

regarding the asset transactions, an investigation recently resulting

in a substantial report to Judge Lifland after extensive review

of documents and depositions. Following the issuance of that report

on March 1, 1990, the parties submitted additional filings in this

appeal.

39a

Finally, the Bankruptcy Court reasoned that the ex-

pertise of a labor arbitrator was not needed. The labor

arbitration mandated by the opinion of the Eleventh Cir-

cuit had culminated in the issuance of the Elkouri award,

which determined the specific content of the LPPs. Jon-

ophere I, slip op. at 14. The Bankruptcy Court noted that

of those terms,” specifically the term “merger,” to the

asset transactions currently under examination by the

Court. Jd. Finding that the requested second arbitration

touched on “special bankruptcy interests,” the Bank-

ruptcy Court concluded that the “special expertise of the

[labor] arbitrator on the issue of whether there was a

merger of Eastern and Continental is not needed.” Jd.

For all these reasons, the bankruptcy Court declined to

lift the automatic stay to permit the arbitration, without

considering whether the terms of the existing collective

bargaining agreement and the LPPs called for the griey-

ance to be arbitrated.

D. Related Interim Proceedings

Outside of the Bankruptcy Court and after the Chap-

ter 11 filing, Eastern began a lawsuit in March 1989 in

the Southern District of Florida seeking a declaratory

judgment validating work rule changes that expanded

the number of hours pilots were permitted to fly. East-

ern never pursued that action, and it was dismissed sua

sponte on July 17, 1989.

Eastern also filed an application in the Bankruptcy

Court in June to reject its labor contract with ALPA

pursuant to 11 U.S.C. section 1113, but thereafter with-

drew that application before any action was taken upon

it. un August 11, 1989, Eastern filed another lawsuit in

the Southern District of Florida, this time seeking a de-

claratory judgment that its permanent replacement of

strikers was lawful.

4'a

ALPA, meanwhile, submitted grievances challenging

several labor practices instituted by Eastern, including «

- Eastern’s extension of permanent offers to pilots who had

replaced strikers, its changes in flight bidding procedures,

which allegedly denied seniority rights to returning

former strikers, and its leasing from other airlines of

planes complete with crews. ALPA sought, and Eastern

declined, to arbitrate these disputes before the System

Board, as, ALPA contended, was required under the RLA

and pursuant to its collective bargaining agreement with

Eastern.

-E. The Wet-Leasing Lawsuit and the Injunction by

the Bankruptcy Court

On September 1, 1989, ALPA filed suit in the United

States District Court for the Southern District of Florida

to stop Eastern’s post-petition practice of leasing lanes

and crews from other airlines to fly Eastern routes—the

“wet leasing” lawsuit that is the subject of the second

appeal. ALPA v. Eastern, Civ. No. 89-1823. In its com-

plaint, ALPA alleged that. Eastern began wet-leasing in

August 1989 and that the wet-leasing violated the East-

ern-ALPA collective bargaining agreement with the RLA.

ALPA’s claim was based on the “scope” clause of that

agreement, which it says requires Eastern to employ

ALPA represented pilots on the Eastern pilot system

==. seniority list to perform any and all Eastern flying, and,

thus, bars the practice of wet-leasing with non-Eastern

pilots.2, The complaint sought injunctive relief pursuant

to the RLA prohibiting the wet-leasing or in the alter-

native, an injunction pending expedited arbitration be-

2 Section 1 of the Agreement provides:

It is agreed that all present or future flying including flight

training (except for initial factory-conducted training in newly

purchased equipment), revenue flying, ferry flights, charters

ane 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.

inet

4la

fore the System Board. The complaint also sought mone-

tary relief to make whole ALPA-represented Eastern

pilots.

On September 13, ALPA moved for expedited discovery

from Eastern, which was granted on September 26 in an

order setting a trial date of October 30 for the prelimi-

lary injunctive relief request.

On September 25, 1989, Eastern brought by order to

show cause an adversary complaint and motion for pre-

liminary injunction in the Bankruptcy Court to enjoin

ALPA’s lawsuit as a violation of the stay and as burden-

some to the Chapter 11 estate. Judge Lifland issued a

temporary restraining order enjoining ALPA from con-

tinuing the prosecution of the wet-leasing suit pending

hearing in Bankruptcy Court of Eastern’s preliminary

injunction motion. A hearing on the motion was held

and, shortly thereafter, the wet-leasing action was en-

joined by the Bankruptcy Court on October 4, 1989 as a

violation of the automatic stay provision of 11 U.S.C.

$ 362. The court also invoked its authority under 11

U.S.C. $105 as support for the injunction, holding the

lawsuit was an attempt to interfere with the Bankruptcy

Court’s exclusive jurisdiction over the administration and

property of the-estate.

Judge Lifland’s opinion concluded that the purpose of

the protection provided by Chapter 11 “is to give the

debtor a breathing spell, an opportunity to rehabilitate

its business and to enable the debtor to generate reve-

nue.” Jonosphere II, slip op. at 11. Relying upon the

Supreme Court decision in NLRB v. Bildisco & Bildisco,

465 U.S. 513 (1984), the court emphasized that rehabili-

tation of the debtor is the “|p]aramount policy of Chap-

ter 11, to which all other bankruptcy policies are sub-

ordinated.” Jd, at 12 (quoting Jn ve Ionosphere Clubs,

Inc., 98 B.R. 174, 176-77 (Bankr. S.D.N.Y. 1989)). The

court further noted that the point of the automatic stay

was to “permit|] the debtor-in-possession and its man-

agement to have a breathing spell from creditors pursu-

42a

ing their claims . . . so they may concentrate on the

debtor’s business and rehabilitation effort.” Jd. at 16

(citation omitted).

The court therefore held that ALPA’s lawsuit to en-

join wet-leasing violated automatic stay provision section

362(a) (3), since the suit “obstructs Eastern in its re-

building efforts by controlling the manner in which it

uses its assets.” Jd. The court did not directly address

ALPA’s argument that the passage of section 1113 modi-

fied the automatic stay provision of the Code as applied

to actions against a debtor to enforce a collective bar-

gaining agreement, although the court acknowledged

ALPA’s contention that a debtor’s application under sec-

tion 1113 of the Code was the exclusive procedure by

which a debtor could alter its collective bargaining agree-

ment in bankruptcy. /d. at 17.

The Judge Lifland further ruled that the Bankruptcy

Court had authority under section 105 of the Code to

enjoin any proceeding which interferes with the rehabili-

tative process, id. at "4, or that impairs the court’s ex-

clusive jurisdiction over any issue that involves the ad-

ministration and assets of the debtor’s estate. The court

therefore concluded it had exclusive jurisdiction over

ALPA’s complaint, and could enjoin the Florida action,

since any injunction of the wet-leasing practices that is-

sued from the federal court in Florida (presumably upon

a finding there that the practice violated the collective

bargaining agreement) would have a “substantial and

irreparable detrimental impact on [Eastern’s] reorgani-

zation.” Id. at 18.

G. Proceedings and Developments Subsequent to the

Appeals

Following these rulings by the Bankruptcy Court, on

November 22, 1989, ALPA advised Eastern that it was

ending its sympathy strike against the airline. That set

in motion a number of litigation events.

43a

Two days after notice of this turn in events, Eastern

moved to amend the complaint it had filed in federal

court in Florida to raise additional issues, including

whether it could continue in effect work rules that al-

legedly deny ALPA’s returning strikers their seniority

rights. On December 8, 1989, ALPA sought to consoli-

date and expedite for hearing before the System Board

the various grievances it had previously filed there, which

included grievances relating to the strike replacement

and work rule issues.

On December 11, 1989, ALPA notified the District

Court in Florida that it consented to the filing of East-

ern’s proposed amended complaint in the proceeding

Eastern had initiated there, and that it planned to file

counterclaims that would put in issue not only Eastern’s

bids and hiring of permanent replacements for striking

ALPA pilots, but also Eastern’s alleged improper refusal

to bargain with ALPA and alleged attempt to undermine

ALPA’s status as bargaining agent.

The same day, Eastern initiated an adversary pro-

ceeding in Bankruptcy Court placing before Judge Lif-

land the same issues ALPA was seeking to arbitrate be-

fore the System Board under the RLA, and which East-

ern had theretofore sought to litigate in federal court in

Florida. (This adversary complaint apparently did not

address or seek determination of the wet-leasing issue

ALPA had raised in its action filed in federal court in

Florida or the LPP merger dispute ALPA had sought to

arbitrate.) Eastern secured a temporary restraining

order from the Bankruptcy Court halting the proposed

System Board arbitration and a hearing in that court

was scheduled for December 15. The next day, December

12, Eastern moved in the Southern District of Florida to

withdraw its motion to amend the complaint in that

Court, thereby seeking to head off ALPA’s proposed coun-

terclaims and to avoid placing the grievance and work

rule issues before the Florida court.

44a

On December 13, ALPA filed an application in this

Court to withdraw Eastern’s adversary proceeding from

the Bankruptey Court pursuant to the mandatory with-

drawal provision, 28 U.S.C. §157(d), and to have the

proceeding transferred to the Southern District of Flor-

ida. That filing resulted in the stay of the December 15th

bankruptcy court hearing. The District Court in Hastern

Airlines, Inc. v. Air Line Pilots Ass’n, Int'l, 89 Civ. 8250

(MBM) (“Eastern Airlines”) on January 24, 1990 de-

nied ALPA’s motion to withdraw the adversary proceea-

ing from Bankruptcy Court in a careful 26 page opinion

rendered by the Honorable Michael B. Mukasey.

The Issues Presented

From this welter of prior and related proceedings three

issues emerge as relevant to the determination of these

appeals. Each bears on the larger question of when and

in what forum collectively bargained-for rights may be

enforced against an employer who has sought protection

from creditors in bankruptcy.

1. Does section 362(a) of the Bankruptcy Code auto-

matically stay actions to enforce a collective bargaining

agreement, where the debtor has not sought rejection or

alteration of the terms of the agreement under section

1113 of the Bankruptcy Code?

2. If section 362(a) stays such actions, did the Bank-

ruptey Court abuse its discretion in refusing ALPA’s

request for relief from the stay to arbitrate the LPP

merger dispute?

5. If section 362(a) does not stay such actions, did

section 105 of the Bankruptcy Code nevertheless author-

ize the Bankruptcy Court to enjoing the wet-leasing suit?

45a .

I. Section 1113 Bars Application of the Automatic Stay

to the Disputes over LPP Abitration and Wet-

Leasing.

A. The Effect of Section 1113 is Properly Considered

in these Appeals

In the first proceeding, ALPA requested an order

from the Bankruptcy Court lifting the automatic stay to

permit it to arbitrate the rights of Eastern pilots to re-

ceive the benefit of labor protective provisions negotiated

between Eastern and ALPA over three years ago (the

“LPP dispute”). Failing to secure permission from the

Bankruptcy Court under section 363(d) of the Code to

proceed with that arbitration, ALPA now argues that

the law does not require that it seek or obtain authoriza-

tion from the bankruptcy court to initiate arbitration of

the LPP dispute. ALPA failed to argue below, but in-

sists on appeal, that in enacting Bankruptcy Code section

1113 in 1984, Congress effectively removed labor arbitra-

tions and other actions to enforce rights under collective

bargaining agreements from the scope of the automatic

stay provision of section 362 (a).

Arguments or issues not raised before a lower court

ordinarily are not addressed on appeal. Singleton v.

Wulf, 428 U.S. 106, 120 (1976). The rule has been

applied to refuse consideration to arguments litigants

failed to raise initially in the bankruptcy court. See, e.g.,

Truck Drivers Local 807 v. Carey Transportation Inc.,

816 F.2d 82, 90 (2d Cir. 1987) (circuit court would not

consider argument in bankruptcy appeal which was not

raised in either the district court or bankruptcy court) ;

see also In re Marvin Properties, Inc., 854 F.2d 1183,

1186-87 (9th Cir. 1988) (district court could properly

decline to entertain issue not raised below where party

offered no reason for its failure and no manifest injustice

would result); In re Ozark Restaurant Equipment Co.,

850 F.2d 342, 345-46 (8th Cir. 1988) (district court

ei | |

46a

properly determined that it was not empowered to con-

sider an issue not raised in the bankruptcy court) ;

Liakas v. Creditors’ Committee of Deja Vu, Inc., 780

F.2d 176, 179 (1st Cir. 1986) ; In re REA Holding Corp.,

2 B.R. 733, 737 (S.D.N.Y. 1980).

Notwithstanding these authorities, appellate courts—

including district courts sitting as appellate courts in

bankruptey matters—frequently do address legal argu-

ments raised for the first time on appeal where the argu-

ment is clearly presented by the record. See e.g., In re

Air Conditioning Ine. of Stuart, 845 F.2d 293, 299 (1ith

Cir.) (district court did not abuse its discretion in re-

solving issue presented for the first time on appeal from

a bankruptcy court), cert. denied, — U.S. —, 109 S.Ct.

557 (1988); Matter of Pizza of Hawaii, Inc., 761 F.2d

1374, 1379-80 (9th Cir. 1985) (district court has “power

to consider any issue presented by the record even if the

issue was not presented to the bankruptcy court’) ; Abew

Corp. v. Ski’s Enterprises, Inc., 748 F.2d 513, 516 (9th

Cir. 1984) (“It is well settled in this Circuit that where

the new issue is purely a legal one . . . we may resolve it

on appeal”) ; Vintero Corp. v. Corporacion Venezolana de

Fomento, 675 F.2d 518, 515 (2d Cir. 1982) (“when a

party raises new contentions that involve only questions

of law, an appellate court may consider the new issues’’) ;

North American Leisure Corp. v. A&B Duplicators, Ltd.,

468 F.2d 695, 699 (2d Cir. 1972) (an appellate. court

may consider legal theories not relied upon below) ;

Foster v. United States, 329 F.2d 717, 718 (2d Cir.

1964) (“[t]hese contentions are wholly different from

the points raised in the court below, but since only a ques-

tion of law is involved, we will proceed to consider

them”) ; In re Weeks, Thomas & Lysaught, 97 B.R. 46,

46-47 (D. Kan. 1988) (“[wlhen sitting as a court of

review over the bankruptcy court, the district court has

power to consider any issue presented by the record, even

if the issue was not presented to the bankruptcy court”) ;

Rubel v. Brimacombe & Schlecte, P.C., 86 B.R. 81, 83

47a

(E.D. Mich. 1988) (appellee’s claim that district court

cannot consider legal issues not raised before the bank-

ruptcy court is without merit).

Here, ALPA was aware of the existence of the section

1113 argument at the time of its application for relief

from the stay, yet did not place the issue before the

Bankruptcy Court. That failing notwithstanding, the

argument presents purely legal issues that do not raise

facts outside the record, and the record in that proceeding

squarely presents for determination the question of sec-

tion 1113’s impact on the automatic stay. If ALPA is

correct in its legal contention that the stay is modified by

section 1113, then permission of the bankruptcy court was

not necessary to proceed with the arbitration and the

order foreclosing arbitration was a nullitiy. This poten-

tial injustice makes it appropriate to consider ALPA’s

section 1113 argument in the first appeal.

That conclusion is eased by, although reached inde-

pendently of, the fact that the same legal argument is

providently raised by the second appeal. In the second

proceeding—brought by Eastern to prevent ALPA from

continuing with its federal court action to enjoin East-

ern’s wet-leasing—Eastern argued to Judge Lifland that

the automatic stay rendered ALPA’s Florida action a

nullity. ALPA’s reply in the Bankruptcy Court was the

same as that now asserted in the first appeal—that the

automatic stay does not apply to actions to enforce rights

arising under labor agreements.

Thus, in b

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