Amicus Curiae Brief — Air Line Pilots Ass'n v. O'Neill
Supreme Court brief1991
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No. 89-1493
In the
Supreme Court of the United States
October Term, 1990
AIR LINE PILOTS ASSOCIATION, INTERNATIONAL,
Petitioner,
v.
JOSEPH E. O’NEILL, et al.,
Respondents.
On Writ of Certiorari to the
United States Court of Appeals for the Fifth Circuit
APPENDIX TO BRIEF AMICUS CURIAE FOR CONTINENTAL
AIRLINES, INC. IN SUPPORT OF REVERSAL
John J. Gallagher, P.C.
Counsel of Record
Charles L. Warren
Joel M. Cohn
Jon A. Geier
AKIN, GUMP, STRAUSS,
HAUER & FELD
1333 New Hampshire Avenue, N.W.
Suite 400
Washington, D.C. 20036
(202) 887-4000
Attorneys for Amicus
November 15, 1990 CONTINENTAL AIRLINES, INC.
INDEX
DOCUMENT "
Declaration of Donald J. Breeding
(without attachments), attached to
Continental’s Motion to Intervene For
Rehearing filed in O’Neill v. ALPA,
No. 88-2848 (Sth Cir. November 11, 1989)
Memorandum of Authorities Authorizing
‘ection of Airline Pil
ae Collective Bareaini
Agreement, Jn re Continental Airlines
Corp., Consolidated Case No. 83-04019-H2-5
(Bankr. S.D. Tex. August 17, 1984)
Texas Air Corp. v. O'Neill, No. 89-2455
(Sth Cir. April 13, 1990)
Verified Counterclaim of Continental Airlines,
Inc., ALPA v. Continental Airlines, Inc.,
No. 85-5203 (S.D. Tex. filed September
6, 1985) (without attachments)
PAGE
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A-65
A-73
DECLARATION OF DONALD J. BREEDING
I, Donald J. Breeding, do hereby swear and affirm as
follows:
1. Introduction. I am employed by Continental
Airlines, Inc. ("Continental") as Senior Vice President, Flight
Operations. I held the position of Vice President, Flight
Operations at Continental from 1982 through June 1986. I
returned to Continental in my present position in November
1988 and have continued in this position to date. My
responsibilities include the supervision of all matters relating
to the pilot work force and flight operations of Continental. I
previously held the position of Vice President-Flight
Operations at Texas International Airlines from 1975 through
June 1980, prior to the subsequent merger of Texas
International into Continental on September 30, 1982. In
October 1985, I served as one of the negotiators on behalf of
Continental in the negotiation of the Continental-ALPA
settlement which was entered as an "Order and Award” of
Judge T. Glover Roberts on October 31, 1985. See
Attachment A (as amended). I offer this Declaration to
clarify certain facts surrounding the 1983-85 ALPA strike
against Continental, and the negotiation and implementation
of the Continental-ALPA settlement, in order to identify what
I believe to be certain errors of fact and mischaracterizations
relating to the Continental-ALPA settlement in the Fifth
Circuit panel opinion issued October 31, 1989 in O'Neill et al.
v. Air Line Pilots Association, No. 88-2848.
2. The Settlement Has Been A Success: Aj] Returned
Strikers Now Exercise Full Seniority. The panel opinion
expresses concern, at p. 455, that the settlement might be
viewed to create a permanent cleavage between strikers and
non-strikers. It was, and is, in Continental’s interest to avoid
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such a cleavage, and to end the bitter strike which had created
true cleavage. Continental’s paramount concern for the safety
of the travelling public, makes it an imperative to achieve
harmony in the cockpit between the returning pilots and the
working pilots. It is my opinion that the settlement was an
enormous success in this regard; the Continental pilots have
all conducted themselves as professionals, and the hostilities of
the strike, see infra at 1 5, have been put behind them.
Three hundred forty nine pilots returned to work at
Continental under the Continental-ALPA settlement (261
under Option 1 and 88 under Option 3). All of those pilots
have exercised their full seniority for bidding purposes at least
since the Fall of 1987; 320 of these pilots had been advanced
into or awarded Captain positions by October 1988.4 (The
remaining pilots either voluntarily elected to bid for lower
status positions or did not have sufficient system seniority to
hold a captain position of their choice.) Thus, there is no
basis at all for concern about the terms of the settlement
creating a permanent cleavage.
3. ALPA yani fforts Among nti: al
Pilots. ALPA has conducted an organizing campaign ng
active Continental pilots since 1987, including the period while
its Motion for Summary Judgment was pending in the district
court and while this appeal was ongoing. See Attachment B
(ALPA campaign materials). Based upon my experience with
ALPA, and the high priority ALPA placed on that organizing
AJ !
1/ Under the settlement, all returned pilots (except those few who had been
on furlough status prior to the strike) retained their full pre-strike seniority,
utilized that seniority for all purposes other than initial a¢vancement to
Captain and exercised such seniority fully in all bids after their initial service
as a Captain. Thus, at all times these returned pilots exercised their full
seniority for such purposes as bidding monthly work schedules, bidding for
vacation preference, and for all other purposes.
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campaign, I believe it likely that ALPA tempered its
statements and positions in this litigation in light of their
potential political impact on the campaign. Moreover, ALPA
successfully sought to seal the record of its negotiator’s
testimony below from exposure to Continental, (Attachment
C), and therefore had obvious strategic problems in any
attempt to seek the testimony of Continental negotiators,
which ALPA failed to do.
4. O'Neill Group Litigation, The O'Neill Group has
indicated in filings in other litigation that it is comprised of
approximately 250 of the approximately 2,000 pre-strike
Continental pilots, primarily pilots who resigned or retired
during the course of the ALPA strike at Continental or who
elected Option 3 under the Continental-ALPA settlement.
The O’Neill Group has pursued at least seven major matters
in litigation against Continental since the announcment of the
settlement:
(a) objections to Continental’s motion to approve the
settlement pursuant to Bankruptcy Rule 9019, which were
denied by the bankruptcy court’s December 27, 1985 Order
Approving Settlement. The O’Neill Group’s subsequent
motion to alter or amend that approval order remains the
subject of litigation. See Continental Airlines, Inc. v. O'Neill
et. al, Civil Action No. 87-96 (S.D. Tex.), Appeal No. 89-2381
(Sth Cir.);
(b) a dispute regarding application of the settlement to
"resigned or retired pilots," Continental Airlines, Inc. v. O'Neill
et. al, Civil Action No. 87-1092 (S.D. Tex.), Appeal No. 89-
2383 (Sth Cir.);
(c) a dispute regarding the impact of post-settlement
mergers and the addition of "foreign pilots” to the Continental
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pilot seniority list. Continental Airlines, Inc. v. O’Neill et. al,
Civil Action No. 87-1089 (S.D. Tex.), Appeal No. 89-2384 (Sth
Cir.);
(d) a civil action in district court challenging the
Continental-ALPA settlement as in violation of the Railway
Labor Act. O’Neill v. Continental Airlines, Inc., Civil Action
No. 87-259 (S.D. Tex.);
(€) appeal from the bankruptcy court order denying
pilots’ bankruptcy claims for contract rejection damages,
O’Neill v. Continental Airlines, Inc., Civil Action No. 85-6151
(S.D. Tex.), Appeal No. 89-2347 (Sth Cir.), for furlough pay.
(f) appeal from the bankruptcy court order denying
pilots banking claims, O’Neill et al v. Continental Airlines, Inc.,
Civil Action No. 86-3705 (S.D. Tex.), Appeal No. 89-2943 (Sth
Cir.); and
(g) pursuit of a lawsuit which ALPA had brought
against Continental’s parent, Texas Air Corporation, and which
had been settled by ALPA as part of the Continental-ALPA
settlement. Texas Air Corp. v. Air Line Pilots Association, Civil
Action No. 84-530 (S.D. Tex.), Appeal No. 89-2455 (Sth Cir.).
5. Strike-Related Violence And Misconduct. The
two-year ALPA strike at Continental was exceptionally hostile
and bitter. There were repeated incidents of harassment of
passengers and working pilots by striking pilots, including an
incident for which two striking pilots were convicted of federal
felony offenses for possession of unlawful explosive devices,
apparently intended for use in pipe-bombing the homes of
certain working pilots. Continental also obtained injunctions
against ALPA for harassment of working employees and
passengers, and obstruction of access, in Houston, Dallas, San
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Antonio, and San Diego. See Attachment D (copies of
injunctions). Other strike-related violence included telephone
death threats, arson of a working pilot’s barn and another’s
home, the release of noxious odor bombs in Continental
airport facilities in Houston and Denver, the jamming of
aircraft communications systems, and hundreds of incidents of
vandalism to the property of working pilots. Continental
believes to this day, and alleged in a 1984 lawsuit claiming
violations of the Racketeer Influenced and Corrupt
Organizations Act of 1970, 18 U.S.C. $ 961 et seq.
(Attachment E), that this violence was sponsored, coordinated
and financed by ALPA through a so-called Security and
Intelligence Committee, otherwise known as a "dirty tricks"
squad, which operated in secret and received and disbursed
ALPA funds under a variety of aliases during the course of
the strike, and whose purpose was to intimidate pilots who
elected to cross ALPA’s picket line, thereby shutting down
Continental’s operations. ALPA attached such a high priority
to the strike that for almost two years it paid extraordinary
strike benefits at the rate of $3800 per month to striking
Captains and $2400 per month to striking First and Second
Officers.
6. Bankruptcy Court Findings. The hostility
between Continental and ALPA was carried forward in
extensive litigation, beginning with ALPA’s assertion that
Continental had sought bankruptcy court protection for
improper purposes. However, after a full evidentiary hearing,
the bankruptcy court expressly found that:
Continental Airlines filed this proceeding only when
management felt it had no acceptable alternative if
it were to have a chance to keep the airline flying;
the court further finds that there was no intent or
motive to abuse the purpose of the Bankruptcy
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Code. . . The primary purpose in filing these
proceedings was to keep the airline operating so as
to best utilize its going-concern value. The
management of the company owed this obligation
to its shareholders and to its creditors.
In re Continental Airlines, Corp., 38 Bankr. 67, 71-72 (Bankr.
S.D. Tex. 1984). ‘There were also lengthy hearings over _
Continental’s motion to reject the ALPA ‘collective
agreement, which resulted in the following findings regarding
Continental's | a od ble
to this court. . . .On the other hand, this court is
concerned that [ALPA] does not intend to reach
agreement with Continental on terms the airline
can afford. ALPA appears to have strong motives
for seeing that the carrier is shut down as an
example to other carriers whose pilots are
represented by this large and extremely powerful
union. . . .ALPA’s attitude further seems to be at
odds with the spirit and purpose of the Bankruptcy
Memorandum of Authorities Authorizing Rejection of Airline
Pilots Association Collective Bargaining Agreements (Bankr.
S.D. Tex. Wheless, J.) (entered August 17, 1984) at 14-17.
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Attachment F.” This was the bitter context out of which the
Continental-ALPA settlement arose.
7. System Bid 85-5. During the strike, Continental
continued its long-standing practice of providing for future
pilot staffing and training assignments by means 2f periodic
System Bids. Such a bid allocates project~1 pilot positions
among the pilots available for flight duty.“ In order to
2/ The bankruptcy court also rejected ALPA’s allegations that “safety” was
ALPA was singularly unsuccessful in providing a scintilla of evidence to this
court that safety is a genuine concern . . . or that there is substantial
evidence of unsafe conditions on Continental’s airplanes . . ALPA’s
campaign is simply a scheme designed to further ALPA’s efforts to close
by ALPA appears to be a misuse of the labor laws of this country.
Attachment F at 19.
3/ System Bids have historically occurred at Continental from one to five
times per year. In 1985 Continental had 5 System Bids; in 1986 it had one
System Bid; in 1987 it had 3 System Bids; and in 1988 it had 2 System Bids.
A "System Bid” is a long term pilot training and staffing plan, usually
published at Continental four to six months to one-year in advance of its
effective date, the deadline by which >"! pilots would be fully trained and in
their new positions. The lead time between an award date and the effective
date varies with the amount of pilot re-training expected to be required; each
pilot usually assumes his new position as his training is completed.
4/ The announcement of a System Bid projects future pilot staffing needs
by base (geographic location) equipment (aircraft type) and pilot position
(Captain, First Officer, Second Officer). The projections are based on
scheduled aircraft deliveries (or dispositions), expected retirements or attrition,
and marketing plans for expansion, contraction, or realignment of future flight
schedules. Once a System Bid is announced, each Continental pilot “bids” his
preferences for base, equipment and status, and the bids are awarded in
seniority order, subject to a number of exceptions. The System Bid is then
(continued...)
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sumbers of pllot for sox posilions or equipment nook
training must begin from the “bottom-up,” ie. the most junior
pilots, Second Officers, must be relieved from active duty (or
replaced by trained new hires) in order to be available for
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become available to be trained as Captains. A System Bid
therefore identifies each pilots’ “rightful place” and training
considered in the scheduling process. Thus, although a
bid position for some time, his assignment is “locked-in” at the
time the bid is awarded because the training and assignment
of other pilots is done in reliance on his assignment. The use
4/ (..continued)
“awarded”, assigning each pilot to a specific base, equipment and positi
Contrary to a premise of the panel opinion, the allocation of vacancies by
seniority is not a “fundamental right,” but historically a negotiable issue:
vacances at Continental have never been awarded “solely” on the basis of
date of hire seniority, but pursuant to negotiated agreements which contain
several exceptions to pure date of hire seniority. Those exceptions include (1)
a freeze provision, whereby a pilot recently trained as a 727 Captain is
“frozen” in that equipmerct for three years and cannot cross-bid to other
comparable equipment which would require retraining; (2) provisions of the
Seaiorty lasegrasan Deskin of o aoutnal ertemar shun merged the
Continental and Texas International pilot seniority lists in 1983, which decision
included ratio provisions and restricted bidding rights former Texas
International pilots from bidding for certain pre-merger Continental
equipment types; all based upon a pilot’s “expectations” (Attachment G); and
(3) the provisions of the Continental-ALPA settlement allocating Captain
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urning .
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of such bids is absolutely essential to ensure that an adequate
number of fully trained pilots will be available to staff future
schedules. On September 9, 1985, Continental posted System
Base Vacancy Bid 1985-5. This bid, awarded on October 14,
1985, included 186 Captain, 194 First Officer and an
undetermined number of Second Officer (due to aircraft
acquisition uncertainties) vacancies, and had an effective date
of November 1, 1986, the deadline by which all such positions
would be occupied.
8. ALPA's Threats Of False Bids And Inside Job
Actions. On September 15, 1985, while System Bid 85-5 was
pending, ALPA informed the striking pilots that if they
desired to return to work and participate in the bid they could
do so without threat of union discipline or harassment, but
emphasized that the strike would continue. ALPA issued a
press release announcing that this new tactic was a “strategic
maneuver,” stated that its strike of Continental required a
“non-traditional response,” and further stated that "there is
something to be said for having your people back on the
property. It opens up new possibilities for achieving a
solution once you have your foot in the door.” Attachment H.
At the same time, Continental became aware of statements by
ALPA indicating that the returning strikers would act as a
"Trojan Horse,” positioning them for future slowdowns, sick-
outs and other disruptive tactics. See Attachment I ("Two
hundred reinforcements are on their way in . . . we've got our
foot in the door and all we have to do now is kick the damn
thing down."). Continental also received reports that strikers
were being told to offer to return and submit bids, whether or
not they actually intended to abandon the strike and report
for training as scheduled, thereby severely disrupting
Continental’s pilot training program and its ability to staff its
future flight schedule.
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9. Striker Bids Rejected; Bid Awarded. ALPA’s threats
and the evidence Continental gathered caused Continental to
question the bona fide nature of the bids and unconditional
offers submitted by individual pilots between September 15
and 18, 1985. As a result, Continental rejected those offers
and bids and filed suit in federal court challenging the i
of SADR eatee nite een hin tates. ann
also Johns-Manville Products Corp. v. NLRB, 557 F.2d 1126
(Sth Cir. 1977) (where safety and integrity of operations may
be affected by an in-plant strike or misconduct and the
identity of wrongdoers is not feasible, an employer is justified
in locking out all employees). ALPA’s suggestion of possible
false bids to disrupt the training schedule, or other "inside" job
actions by returning strikers was an overriding concern to
Continental at the time the Continental-ALPA settlement was
negotiated in October 1985. The integrity and reliability of its
flight schedule and the safety and convenience of the
travelling public are the essence of Continental's business; it
had a paramount business interest in protecting these interests
against compromise by any or all returning strikers in the
novel circumstances which existed in the Fall of 1985. System
Bid 85-5 was in fact awarded entirely to working pilots
5/ Continental was concerned that a heavy concentration of strikers in
selected bases and equipment (c.g. Los Angeles 727), would leave
Continental's flight operation vulnerable to a job action from within (e.g., if
striking pilots “packed” a specific base or piece of equipment, Continental
would have no reserves or alternatives if most or ail of those pilots elected to
engage in a job action). It was ALPA’s position at the time that, in the
absence of a new contract, the ongoing strike and any other job actior was
legal. Moreover, I and other members of Continental's management, many
of whom had formerty worked at Texas International Airlines, were well
familiar with ALPA’s use of slowdown tactics, which had to be enjoined there
in 1980. See Texas International Airlines v. Air Line Pilots Association, 518 F.
Supp. 203 (S.D. Tex. 1981). The leader of the TI pilots during that
slowdown, Dennis Higgins, was the leader of the Continental striking pilots in
September 1985.
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(including over 400 previously returned strikers and nineteen
strikers whose offers to return were made prior to September
15, 1985). In Continental’s view, the positions on Bid 85-5
were properly and finally’ awarded.” Thus, when negotiations
ensued in October 1985, Continental--and the working pilots--
were of the view that the positions awarded on that bid were
no longer available as vacancies for returning strikers.
Continental was fully prepared to vigorously defend its
position.
10. : teat .
Resolution of the conflicting claims to positions on System Bid
85-5 was a central feature of the Continental-ALPA
settlement. In order to reach a settlement, Continental and
ALPA agreed to share the Captain vacancies on Bid 85-5
between "working pilots’ and "striking pilots" on a negotiated
6/ It is Continental’s long standing practice and policy, dating from prior to
the strike, that a vacancy is filled as soon as a pilot has been awarded it, even
if the pilot is not trained for and advanced into the position unti] months
later. A major reason for this policy is the “domino” or “ripple” effect which
would be created if assignments were changed once the training cycle has
commenced; training which had been done by that time could be wasted, and
the scheduling of further training delayed, by the secondary reassignment of
all affected pilots to a new “rightful place” on the bid assignments.
7/ System Bid 85-5 was the subject of litigation which was settled under the
Order and Award. Air Line Pilots Association v. Continental Airlines, Inc.,
Civil Action No. 85-5203 (S.D. Tex.). The O’Neill Group subsequently
sought to intervene into that litigation; intervention was denied and the case
was dismissed, but was never appealed by the O’Neill Group. Attachment K.
In Continental's view, such claims are now barred.
8/ The “working pilots” included approximately 200 veteran pilots who never
struck and over 400 formerly striking pilots who had previously returned to
work. The panel opinion seems to presume, erroneously, that strikers
returning under the settlement were necessarily senior to the working pilots
(continued...)
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formula basis which included a fixed timetable for the
advancement of returning pilots to Captain positions, including
pay guarantees in the event the timetable could not be met.
In exchange, ALPA agreed to a 1:1 ratio for allocating future
Captain vacancies between returning and working pilots. This
allocation method was modeled on an arrangement common in
airline mergers, and had previously been used in the 1983
pursuant to ALPA’s published Merger Policy in effect at the
time). eee It was, as the Court describes it, a
“dovetailing"” two groups of pilots, but only for purposes
of allocating Captain vacancies; once in their assignments all
pilots exercised their full seniority, thereby entitling more
senior returned pilots to their preferences as to monthly work
schedules, vacations and similar matters. Continental
continues to believe that this was not discrimination at al! but
was a reasonable compromise.
11. Order of Recall. It was Continental's consistent
practice throughout the ALPA strike that striking pilots who
made an unconditional offer to return to work were recalled,
when vacancies were available, in the order in which their
offers to return were made, pot in seniority order. The
Continental-ALPA settlement continued this practice for those
pilots who desired to return to work, but who elected not to
settle their claims (ic, Option 3 pilots). See Attachment A at
§1.B.1. Those pilots who desired to return to work but
elected to settle their claims pursuant to the settlement (ic.
Option 1 pilots) were recalled in seniority order as if they had
made an unconditional offer to return as of September 15,
8 (...continued)
with whom they were ratioed for future Captain vacancies; this was not
necessaniy true.
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”
1985. Id. The panei opinion suggests that there is some
evidence in the record that Continental somehow indicated to
ALPA on September 15, 1985 that it would return strikers to
work in seniority ordex if the strike were terminated. I am
confident that Continental made no such offer or statement.
While the panel opinion points to the post-strike recall of
mechanics and flight attendants in seniority order, apparently
no party alerted the Court that mechanics and flight
attendants are already trained, or easily trained, on all aircraft
types and are therefore fungible. Pilots, in contrast are
required by FAA regulations to be trained and qualified at
substantial expense, for a specific aircraft type. Thus, it would
have been in Continental's business interest for Continental to
have recalled striking pilots based on their qualifications for
available positions. While it was in Continental’s interest to
re-train such pilots when pilots were scarce and its operations
were growing, that would not have been the situation
following Bid 85-5 and termination of the ALPA strike.
12. Continental's Pre-Settlement FAA-Approved Pilot
Training Manual. The panel opinion correctly notes that the
settlement required returning pilots to fly for four months as
First Officers before assuming Captain positions. The Court
was apparently not made aware that this reflected
Continental’s pre-existing, Federal Aviation Administration
a requirement that any pilot who was absent from a
Continental cockpit for more than 24 months had to serve at
least four months as a co-pilot before assuming a Captain's
position. Attachment L. Under Federal Aviation Regulations,
Continental could not have changed that requirement without
FAA approval. 14 C.F.R. § 121.405.
13. Continental Did Not Assign Rank or Pay Status.
Contrary to the statement in the panel opinion at p. 448,
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Continental had no voice or discretion in determining a
returning pilots’ rank (which determines pay status). Because
of Continental’s concern about in-plant strikes and work
slowdowns, see supra at 1 5-6, Continental negotiated the right
to “assign” the initial base and equipment (but not the rank or
pay status) of any returning pilot in his initial assignment upon
return, or in his initial assignment as a Captain. In contrast,
the rank of a returning pilot was determined objectively on
the basis of available vacancies upon his return and upon the
pilot’s place in the sequence of returning pilots. Continental's
right of assignment for base and equipment was temporary, it
expired as to each returning pilot upon the next System Bid
following his return to work or following his first service as a
relating
equipment freezes applied only to pilots who had bid for
assignment to new equipment which required training; such
equipment freezes have never been imposed upon pilots
returning pilots who were assigned to a type of equipment--
such pilots were free to bid their seniority on the next System
Bid. Attachment M.
15. Severance Payments. The settlement provided a
Those pilots received a total of $17.3 million, an average of
over $47,000 per pilot. Approximately 20 Option 2 pilots
received over $100,000 each, based upon the formula of
$4,000 per year of service. Continental filed two verified
reports detailing the amount of severance due to pilots
electing Option 2, and served copies of those reports on both
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ALPA and the O’Neill Group. Attachment N. Contrary to
the statement in the panel opinion at p. 449, the settlement
contained no cap on Continental’s overall exposure to
severance pay. The $2.6 million "cap" referenced in the
Court’s opinion relates only to a maximum amount of
severance available to a small sub-group of striking pilots, i.e.
those pilots "who were not drawing ALPA strike benefits as of
September 15, 1985 and were not on furlough status as of
September 24, 1983[.]". See Attachment A at § ILA2 (p. 14-
15) (emphasis added). The great majority of striking pilots
were receiving ALPA strike benefits as of September 15, 1989.
16. W. ims W. id; Waived.
Contrary to the panel opinion, at p. 448, the settlement also
provided that Continental would pay to all pilots, regardless of
their option election, 100% of their “hard” claims, which
included (1) unpaid pre-petition wages, (2) unpaid pre-petition
medical and dental expenses, (3) accrued but unused vacation
and (') reimbursable pre-petition expenses, subject only to a
final determination of the amount due by the bankruptcy
court. Id. at S ILC (pp. 18-19). The settlement did provide
that pilots electing Option 1 or 2 would waive any litigation
and other "soft" claims. Id. At the time of the settlement,
however, most such claims, including striking pilots’ claims for
contract rejection damages had already been disallowed by the
bankruptcy court. See Orders attached hereto as Attachment
O.
I declare under penalty of perjury that the foregoing
statements are true and correct.
Executed on November __, 1989.
Donald J. Breeding
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IN THE UNITED STATES BANKRUPTCY COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
CASE NO.
IN RE: 83-04019-H2-5
CONTINENTAL AIRLINES CORPORATION
DEBTOR
IN RE:
CONTINENTAL AIR LINES, INC. 83-04020-H1-5
DEBTOR
IN RE:
TEXAS INTERNATIONAL AIRLINES, INC. 83-04021-H3-5
DEBTOR
IN RE:
TXIA HOLDINGS CORPORATION 83-04022-H3-5
DEBTOR
CONSOLIDATED CASE NO.
83-04019-H2-5
August 17, 1984
MEMORANDUM OF AUTHORITIES
AUTHORIZING REJECTION OF AIRLINE PILOTS
ASSOCIATION COLLECTIVE BARGAINING AGREEMENTS
A197
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On September 24, 1983, Continental Airlines
Corporation ("CAC"), Continental Air Lines, Inc. ("CAL"),
Texas International Airlines, Inc. (“"TXI") and TXIA Holdings
Corporation (collectively "Continental") filed simultaneous
Chapter 11 proceedings under Title 11 of the United States
Code. On the 27th day of September, 1983, Continental filed
a motion to reject the collective bargaining agreements with
the Airlines Pilots Association ("“ALPA"), the Union of Flight
Attendants ("UFA"), the International Association of
Machinist and Aerospace Workers ("IAM"), and the Transport
Workers Union (“TWU"). |
On the 11th day of October, 1983, the unions filed a
joint motion to dismiss the Continental Chapter 11
proceedings on the ground that the proceedings were not filed
in good faith; alleging that the sole or the primary purpose of
Continental in filing its proceedings was to reject the union
contracts. After an extensive hearing, this court denied the
joint motion to dismiss.
By agreement of the parties, the evidence introduced at
the hearing on the motion to dismiss was included in the
record on the motion to reject the employee agreements. The
court adheres to the findings made in that decision.
The taking of evidence on the motion to reject
commenced on January 30, 1984. This was over four months
after these proceedings were filed but was the earliest this
court’s calendar would permit it to undertake this lengthy
hearing. With some interruptions, the presentation of
evidence continued until April 27, 1984. At the conclusion of
the debtor’s evidence, the court took under advisement the
motion of the TWU to enter judgment denying rejection of
the collective bargaining agreements with the Transport
Workers Union. In addition, to some extent, the question of
rejection of the various agreements with the IAM is being
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treated separately. The court has not yet issued a ruling with
respect to the UFA agreements.
Continental shut down its domestic operations at filing
but restated them on a substantially reduced basis on
September 27, 1984.
Immediately upon the filing of this proceeding on
24, 1983, Continental Airlines implemented
"Emergency Work Rules” with respect to each of the four
involved unions. These constituted unilateral changes in pay,
benefits, work rules and conditions. On or about that date,
Continental transmitted copies of the emergency work rules to
each union by a letter indicating that these emergency work
rules were just that and that they also constituted an offer to
each of the unions to negotiate a new agreement. These
cover letters refer to the fact that certain issues were omitted
from the provisions in the rules. After receipt of these
emergency work rules, ALPA and UFA went on strike
(beginning October 1, 1983) without undertaking any
negotiations with Continental over the emergency work rules
or any new agreement based on Continental's then-existing
status. Both of these unions have been on strike since that
date; although a number of negotiating sessions have since
taken place.
The LAM and Continental had already bargained to an
impasse, which was declared effective July 13, 1983. On
August 13, 1983, the LAM went on strike; whereupon
Continental Airlines implemented "Interim Work Rules" which
were subsequently amended on September 12, 1983. These
interim work rules were replaced on September 24, 1983, by
the emergency work rules applicable to the remaining LAM
employees of Continental.
A-19
ei
For the reasons set forth below, this court has
determined that the equities favor the debtor and its estate,
that the contracts with the Airline Pilot Association are
onerous and burdensome and that such agreements must be
rejected in order for Continental to have an effective
reorganization. This rejection is pursuant to the provisions of
11 U.S.C. § 365 and under the principles enunciated in the
case of NLRB v. Bildisco and Bildisco, 104 S. Ct. 1188 (1984)
decided February 22, 1984, during the evidentiary presentation
in this case. That case was decided under the National Labor
Relations Act. This court determines that the same reasoning
and rationale are applicable to this case, which is decided
under the Bankruptcy Code and the Railway Labor Act, 45 i
U.S.C. 151, et seq.
FACTS
Effective in 1978, the United States Congress, in its
wisdom, determined that the airline industry should be
deregulated to promote greater competition with respect to
routes and fares, to allow more ready access of new entrants
into the industry and to add flexibility of all airlines to enter
new and existing markets and to charge what the traffic would
bear, so to speak. Congress took this action despite the
protests of the existing airlines, ALPA, the LAM, and other
interested parties, who predicted that deregulation would
result in financial difficulty for many of the carriers and
bankruptcy or mergers for some and that this would cause
displacement of many employees.
The aims and goals of the U.S. Congress in deregulating
the airline industry appear to have been realized. Airfares
have decreased dramatically in areas where the particular
market. Many new airline companies have entered into the
marketplace and now compete directly with Continental
A-20
a
Airlines and the other airlines in the industry. In order to
offset this increasing competition, Continental sought to
increase its marketing efficiency by resorting to a “hub and
spoke” operation; utilizing Denver and Houston as its
operational hubs. While this has had some substantial
beneficial effect on Continental’s operations, this benefit was
not sufficient to offset the fare advantages resulting from
lower labor costs enjoyed by the new entrants in Continental's
market. The lower labor cost of these new entrants resulted
from the lack of historically based labor agreements which had
escalated during the regulated period, before 1978, when the
airlines could pass these increased costs on to the consumer.
In this regulated atmosphere of the airline industry pre-1978,
the self preservation instincts of the carriers were mitigated
against and they thus did not have adequate incentive to resist
the persistent and determined negotiating techniques of the
powerful unions in the airline industry, such as ALPA and the
LAM.
These unions have historically (and effectively) used the
last highest contract as a stepping stone for each new
negotiation. The result has been higher and higher wage rates
and better and better provisions for the employees relating to
work terms. There is no question that these unions did an
outstanding job on behalf of their membership in this regard.
This trend of higher and higher !abor costs (negotiated by
these unions) continued even after deregulation by virtue of
these same techniques. No doubt upward inflation during this
same time was a factor in these negotiations. The result,
however, was a complex system of work rules which operated
less and less efficiently for the airlines but which generated
more and more time off and higher pay for the members of
these unions. The additional and more unfortunate result was
that it made a high and inflexible labor cost system for the
major carriers coming out from the nurture of regulation.
This caused many of them to be less competitive with the new
A-21
a@x
entrants who were making increasing incursions into their
markets.
This was particularly true of Continental Airlines, whose
hub systems in Denver and (particularly) in Houston competed
directly with many of these new entrants. Not being fettered
agreements of the older airlines, these new entrants” could
hire pilots, mechanics, and flight attendants in the open labor
market at substantially lower prices than those that had been
negotiated by Continental's labor unions. Labor is a major
factor in the cost of operating an airline and is one in which
there can be material variances from airline to airline. These
new entrants could charge substantially lower fares than the
older more established airlines, and their cheaper labor costs
gave them a substantial competitive advantage over other
substantial control over its markets and does not now.
1) Southwest Airlines had not been subject to regulation because it was an
intrastate carner before dereguiation. Its labor costs have been traditionally
lower. Thus while Southwest is not a “new entrant” in some respects, it is in
oloers, since it has materially expanded its markets since deregulation. Its
labor costs have been low, and it has run Continental out of at least one
market with its lower fares. It is highly competitive with Continental in other
markets. For convenience it will be included within the term “new entrants”
iN this Opinion.
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a@e
As a result, Continental lost substantial sums of money
after deregulation. Up to September 24, 1983, the date of
filing of the Chapter 11 petition, Continental had lost
$521,900,000 as follows:
1979 lost $ 27.4 million
1980 lost 76.8 million
1981 lost 138.6 million
1982 lost 119.9 million
1983 to September 24 lost 159.2 million
$521.9 million
Although there were other factors, the main cause of
Continental’s losses was, as noted, that its higher labor costs
prevented it from effectively competing with the low cost new
entrants which have been significantly increasing their activity
in Continental’s markets. Continental did not have the benefit
of some of the advantages enjoyed by some of its larger
competitors such as United Airlines and American Airlines.
An expert employed by the Trade Creditors Committee
testified that all of the major airlines are seeing “the
handwriting on the wall” and are negotiating, or have
forces. Some have obtained significant reductions in their
labor costs from those stipulated by their existing collective
bargaining agreements. It was forecast that unless the major
carriers eventually reduce their labor costs to the level of the
new entrants, they will not survive.
Continental negotiated from time to time during the year
of 1983 attempting to obtain concessions from its various
umons.
During its disastrous summer of 1983, and prior to filing
its Chapter 11 proceeding, Continental Airlines attempted to
A-23
While the Airline Pilots Association members indicated
that they were "players", nevertheless, they never committed to
the requested $60,000,000 in cost concessions nor to any other
number prior to the filing of the Chapier 11 proceeding.
After the filing, ALPA offered concessions of approximately
$30,000,000 on an annual basis, or about half what
Continental had indicated it needed from ibe pilots to break
even before the filing of the Chapter 11 proceeding.
After the filing, Continental immediately cut back on a
number of its routes and a substantial number of the flights
that it had been flying. It shut down the airline from
September 24 until September 27, 1983, except that it
continued to fly its international routes for fear these lucrative
concessions might be lost. Continental was also fearful of the
domestic flights being shut down for any longer period. Its
position is that it was concerned that it would lose public
Continental scaled back its cost structure in order to
provide high quality service on a fare structure competitive
with the new entrants. It appears to have been somewhat
successful at this marketing technique to date; although it is
not yet known what effect there will be if a full scale fare war
should be engaged in by a substantial number of its
competition. Nor is it known what the full effect of additional!
competition will be from carriers now entering the field,
e A-24
1@<
including the "New Braniff", which began flying during the
spring of 1984 during the evidentiary presentation in this case.
The Supreme Court in NLRB v. Bildisco and Bildisco,
supra, (hereinafter “Bildisco”) required that before acting on a
bargaining
been made and are not likely to produce a prompt and
satisfactory solution. The purpose of this is to serve the
policies (if not the letter) of the Labor Act*. However, the
The unions assert that the involved principle requires the
court to hear evidence and pass on the substantive
details of all relevant negotiating sessions. This is part of an
effort to show that Continental acted unreasonably in the
substance of its proposals to the respective unions. The thrust
of this theory is to place the bankruptcy court in the posture
of determining what the parties should agree to and in what
respect the company offers vary from this standard.
It is precisely this kind of inquiry which this court
understands that Bildisco (and prior cases) determined that
this court should avoid. Bildisco pointed out that the national
labor policies of avoiding labor strife and encouraging
collective bargaining generally require that employees and
unions reach their gown agreements on terms and conditions of
2 In that case it was the National Labor Relations Act ("“NLRA") 29
U.S.C. 158 et seg. This case involves the Railway Labor Act (“RLA") 45
U.S.C. 151 et seq.
A-25
It is the opinion of this court that it is not intended by
bargaining exists both before and after any rejection is
permitted.
A-26
eth e
The Bildisco court avoided using the terms "good faith"
and “bad faith” bargaining; traditional terms in labor
negotiations and labor law. Presumably this was intentional.
Perhaps this is an indication that the Supreme Court intends
for the Bankruptcy Court to stay out of even that area of
determination. The "good faith - bad faith” determination is
simply a determination of whether or not a party has a desire
to reach an agreement at all. It requires some assessment of
the substantive terms of an offer, as well as the willingness to
bargain and the effort to do so. NLRB v. Herman Sausage
Co., 275 F.2d 229 (Sth Cir., 1960). However, even a "good
faith - bad faith” determination is far less of an intrusion into
the bargaining rights of the parties than a determination of
whether the substantive terms of a proposal are “reasonabic’.
The Supreme Court has noted that great caution should
be used in finding bad faith in cases other than wherein there
is a “desire not to reach agreement”, for doing so risks
infringement of the strong federal labor policy against
governmental interference with the substantive terms of
coliective bargaining agreements. Chicago & Northwestern
Railway v. United Transportation Union, 402 U.S. 570 (1971).
The Fifth Circuit has ruled to similar effect in many cases,
including Gulf State Manufacturing, Inc. v. NLRB, 579 F.2d
1298 (Sth Cir. 1978), aff'd in pertinent part 598 F.2d 896 (Sth
Cir. 1979) (en banc).
In addition to this strong policy against such
determinations by a court, the burden on the bankruptcy court
to make an inquiry into the reasonableness of the terms of
offers (as suggested) would appear to be excessive. This court
has allowed this type of evidence in this proceeding because of
some of the uncertainties in the law that existed at the time
of this hearing. The result has been that the hearing lasted
almost three months. No doubt future case law will give the
Bankruptcy Courts guidance with respect to this issue as to
A-27
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future hearings on applications to collective j
reject bargaining
Be that as it may, this court allowed detailed evidence
concerning the substance of numerous sessions
which occurred both before and after the filing of the Chapter
11 petition on September 24, 1983. This was at a great cost
of court time and may have consumed as much as half or
That Continental continued to urge in its bargaining
session that it must maintain its labor cost levels at or about
| A party may try to achieve its objectives and need not
yield. NLRB v. Tomco Communication, Inc., 567 F.2d 871,
884 (9h Cir. 1978). It may even withdraw an earlier offer,
including a tentative agreement on certain provisions, if
circumstances change. NLRB v. Randle-Eastern Ambulance
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Service, Inc., 584 F.2d 720 (Sth Cir. 1978). A position taken
in good faith nced not be abandoned or compromised. The
debtor is entitled to insist on a proposal, however
unacceptable to the union, and if the insistence is genuinely
and sincerely held it may be maintained even if it procudes a
stalemate. NLRB v. Herman Sausage Co., 275 F.2d 299 (Sth
Cir.), rehearing denied 277 F.2d 793 (Sth Cir. 1960), see
American National Insurance Co. v. NLRB, supra, page 309
n.3.
The unions’ position that a party must ask for more than
it wants in order to meet somewhere in the middle is not
accepted by this court. That was urged as being the
traditional method of negotiating. However, the facts in this
case show that this is not the traditional situation facing
negotiators. This is especially true where, as here, Continental
has been in extreme financial difficulty and needed prompt
modification of its collective bargaining agreement.
Having just filed a Chapter 11 proceeding and being the
first air carrier to attempt to fly through such a proceeding,
Continental was in a period of uncertainty and needed the
flexibility allowed it by the so called emergency work rules
promulgated September 24, 1983, immediately upon filing the
proceeding. As noted, Continental substantially cut back on
the number of cities it served and the number of flights to the
cities it continued to serve. It substantially reduced its work
force. At the present time it is facing increasing competition
from even additional new entrants coming into the market
since the filing of this proceeding. It is just now approaching
ity but may be faced with a fare war in the near
future. Under the existing circumstances, Continental's
bargaining position appears reasonable tc this court. Although
it severely cut back the wage levels and liberalized its working
rules, it somewhat patterned these after those of other airlines
with which it was then in competition. Over half of the union
A-29
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membership in each category has crossed the picket lines and
come to work for Continental under the terms of the
emergency work rules (eighty percent in the case of Flight
Attendants) as have newly hired personne!’.
In Neon Sign Corp. v. NLRB, 602 F.2d 1203 (Sth Cir.
1979), the Fifth Circuit found that an employer engaged in
good faith bargaining even though it insisted on wage
problems and lower wages were essential to its survival.
That the proposals submitted by the company were for
provisions similar to those agreed to by the same union at
other companies is evidence of the employer’s good faith. See
NLRB v. American National Insurance Co., 343 U.S. 395, 405
(1952); Gulf State Manufacturers v. NLRB, supra.
That the unions have not accepted Continental's
proposals does not in and of itself mean that they are
unreasonable or that they are not attempting to reach
agreement with Continental. Indeed, the concessions that are
being asked of the pilots, the flight attendants, and others is
substantial and greatly affects a standard of living to which
many of them have become accustomed. This is a difficult
idea to adjust to. Nevertheless, herein, the purposes of the
National Labor policy have been well served. Bargaining by
the debtor with its unions bas been going on for well over a
year. No agreements could be reached with the IAM and an
impasse was declared. No agreement has been reached with
ALPA or UFA.
3/ Some of the jobs subject to the LAM agreements were eliminated
because Continental could (and did) contract these services out to third
parties at cheaper rates than the LAM contract specified (i.c., cabin cleaners,
fuelers, flight kitchen personnel, eic.).
A-30
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Prior to September 24, 1983, the terms offered the
unions were better than those required by the
debtor post filing. Yet no agreement could be reached on
those terms. Just before filing, Continental nade major
presentations directly to its employees in order to reach
agreement on concessions which this court finds were
necessary for it to survive, but the unions (except TWU) did
not agree. A great deal of negotiation has taken place since
filing. To require further bargaining at this level before acting
on the motions to reject seems to this court to be unrealistic
and useless.
Indeed, the failure of the court to act at this stage of
the proceeding (two months after the substantial evidentiary
hearing concluded) may be impeding eventual agreement. As
noted above, the parties have a continuing duty to bargain
even after rejection. If agreement is to be reached, it will
occur after the issue of the rejection of the agreements has
been determined. Perhaps this and the improving income
posture of the debtor will allow agreement to be reached in
the future.
On the other hand, this court is concerned that the
Airline Pilots Assoc ition does not intend to reach an
agreement with Continental on terms the airline can afford.
ALPA appears to have strong motives for seeing that the
carrier is shut down as an example to the other carriers whose
pilots are represented by this large and extremely powerful
union. It represents pilots throughout the airline industry in
the United States. Other carriers are having difficulty in the
post-deregulation period and are requesting concessions from
their pilots. The obligations of ALPA to its other (non-
Continental) members would make it difficult for this union to
recommend settlement with Continental to the extent needed
by Continental in order to lower its labor cost sufficiently for
it to be competitive in its fare levels and to return to
A-31
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—— Reatnchanemimneannnien erat
continue to whatever pressures are required to
preclude New CAL [from] operating profitably. These
pressures will include both economic sanctions and all legal
action open to us... >" In the courtroom, ALPA has verified
that its purpose is to shut down Continental. The Airline
Pilots Association has made it clear, and has convinced this
court, that its primary aim is to shut down Continental
While ALPA’s actions (to the extent they are legal) may
be allowed by prevailing labor laws, wherein they are a means
to achieve an agreement, it appears to this court that other
motives are involved, at least in part. Thus ALPA’s actions to
shut down Continental and/or to deprive it of profitability
reflects on ALPA’s good faith in bargaining and on any
equities involved. ALPA’s attitude further seems to be at
odds with the spirit and purpose of the Bankruptcy Code.
ALPA has maintained that its three principal areas of
concern are (1) preservation of the union as the bargaining
representative of Continental's pilots (union security), (2)
safety and (3) seniority. It also contends that Continental has
sn ORTON Me tr TRON
Continental has at all relevant times recognized ALPA as
the bargaining representative of its pilots, although it has not
honored the "dues checkoff" provision of the collective
bargaining agreement since the strike began.
A-32
ao
THE "SAFETY" QUESTION
The evidence in this case shows that ALPA has
publically indicated that it and its members are vitally
concerned with the safety of the public flying on Continental
Airlines since the October 1, 1983 strike. The pilots failed to
mention that most of the pilots employed by Continental are
those off of ALPA’s seniority list (ie., are ALPA pilots). The
newly-hired pilots must go through required training and must
be That some may be less experienced does not of
itself indicate lack of ability. In addition, the court would
note that safety is the responsibility of the Federal Aviation
Agency, who must revoke or suspend the certificate of
Continental Airlines should Continental not adhere to the
safety standards imposed by this federal agency.
In short, while crying "Safety! Safety!" in the courtroom
and to the public, ALPA has filed in its meager attempt to
offer evidence that Continental Airlines is unsafe to fly. It
has offered almost no evidence of this to this court, and has
apparently failed to convince the FFA, in whose jurisdiction
and responsibility lies the safety of all airlines, including
Continental.
4 Were ALPA genuinely concerned over the public’s interest, it has it
within its power to release some of its striking pilots back to Continental to
help fill its pilots needs. Continental has requested this. It would have
prevented further erosion of Continental's seniority list - an issue in the
settlement negotiations. ALPS is under no obligation to do this but its
failure to do so upon request is indicative of the fact that self interest 1s ils
true motive in this endeavor; not that of the public.
A-33
a
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This court has concluded that ALPA’s campaign is simply
a scheme designed to further ALPA’s efforts to close down
Continental Airlines for its own economic purposes. Among
other things, this would act as a to other carriers who
must deal with ALPA at the bargaining table in other areas.
Based on the evidence offered to this court, this
promotion by ALPA appears to be a misuse of the labor laws
of this country. In any event, the court declines to deny
rejection on the basis of ALPA’s claim that safety is at stake.
THE SENIORITY ISSUE
Some of the major provisions of the collective bargaining
agreements by and between Continental Airlines and the
Airline Pilots Association (including the old Texas
International agreement with ALPA) relate to seniority.
These are very sensitive and important provisions for the pilot
employees (as well as the other union employees with respect
to their respective collective bargaining agreements). ALPA
and the other unions argue that Continental Airlines has not
been reasonable in its efforts to settle because of
Continental’s position with respect to the relative position of
“new hires” that have been employed since the pendency of
this proceeding and after the strikes of Continental’s major
unions, including ALPA.
The unions further argue that the seniority provision of
the contract is a non-executory right which has become
“vested” in the pilots and therefore cannot be rejected under
the provisions of § 365 of the Bankruptcy Code. This court
disagrees.
There is no precise definition of “executory-contract” in
the Bankruptcy Code. At least one of the accepted
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definitions of the term " contract” is a contract that is
so far unperformed on both sides that the failure of either
party to complete performance would constitute a material
breach excusing further of the other. Matter of
Tonry, 724 F.2d 457 at page 468 (Sth Cir. 1984). See
Countrymen, Executory Contracts and Bankruptcy, 57 Minn. L.
Rev. 439 (1973); 58 Minn. L. R. 479 (1974) and House
Report No. 95 - 595, page 347 (1977); Senate Report No.
95 - 989, 2d Sess. 58 (1978), 2 Collier on Bankiuptcy $ 365.02
(1983).
Even though a pilot may have achieved a certain level of
seniority within the meaning and under terms of the collective
bargaining agreement between ALPA and Continental,
nevertheless, the right of employment at Continental by any
particular pilot is not absolute. In order to enjoy the use and
benefit of any seniority position, the pilot must be employed
by, and perform services for, Continental Airlines. It is
therefore clear that under the collective bargaining agreement
both Continental and each employed pilot have reciprocal
obligations during the life of the contract. In other words,
performance is due by both parties. This is likewise true for
every other employee that has seniority under a collective
bargaining agreement. Thus, under the Bankruptcy Code,
such a provision is executory, at least insofar as the right of a
striking pilot to return to work after the strike is settled.
Under the Continental - ALPA collective bargaining
agreements, pilots were entitled to be placed on the seniority
list and to maintain their relative status thereon (absent other
agreement) under the terms and conditions of the agreement.
As a pilot went higher on the seniority list, he had the
privilege of being recalled, or his employment maintained, in
priority to pilots lower on the seniority list. In addition, as
changes were made in the system such as routes, equipment,
bid runs, vacations, etc., the higher the seniority the higher the
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priority for the pilot to have his choice in these areas.
Furloughs were made from the bottom of the seniority list.
Further, after pilots are furloughed, under the agreement they
were recalled in order of seniority. Often this required
extensive retraining by Continental, wherein a pilot changed
type of equipment or was out of service beyond a specified
amount of time.
When Continental filed its proceeding and drastically cut
back on the number of cities it served and the routes it was
flying to the remaining cities, Continental had to furlough a
number of pilots on the payroll. Continental immediately
went on a campaign to get the remaining pilots to agree to fly
under the emergency work rules. Once the strike began on
October 1, 1983, Continental maintained a telephone "bank" in
which pilots were called and requested to fly for Continental
notwithstanding the strike. Those that did return to work
filled the positions then available and, once recalled,
maintained their relative priority they enjoyed on the seniority
list pre-petition. Therefore, the relative seniority of working
pilots is not the issue as this seniority is being honored by
Continental.
For a period of time after the strike, Continental
attempted without success to reach agreement with ALPA on
the terms of a new collective bargaining agreement. As the
early initial chaotic days of filing passed and Continental began
to rebuild its system, Continental needed additional pilots and
made a strenuous effort to get stréking pilots to return to
service. There was some success in this area, but as
Continental expanded its routes it was unable to fill out its list
of needs from the ALPA pilots then on strike. By
instructions from its chief operating officer, Continental
delayed hiring pilots not on the seniority list (“new hires”)
until it felt it had to do so to service its re-expanding route
system. Continental did not undertake employing new hires
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(pilots off their existing seniority list) without adequate
warning to the Airline Pilots Association and its membership.
ALPA was told on October 5, 1983, that replacements would
be hired if the strike was not over quickly, and Continental
sent letters to this effect to all of its pilots. Continental told
all of its active pilots that it would not displace working pilots
in the future to accommodate returning strikers. Striking
pilots had the opportunity to return to work with Continental
as it expanded its operations, but many declined to do so,
although more than 50% of its pre-petition pilots did return to
work.
After Continental reached the conclusion that it had to
employ new hires, and began doing so in early November,
1983, it advised these new pilots that they were permanent
and would not be replaced by striking pilots returning to work
at Continental after the strike ended or upon each striking
pilot’s individual decision to cross the picket line. That
permanent repiacements would be hired if the striking pilots
would not return was well know to ALPA and its membership
long before Continental undertook this practice.
Subsequently, since early November, 1983, as pilot positions
were available in the system, Continental has hired all pilots
off the seniority list who were willing to return (which pilots
have continued to enjoy their relative seniority position) and
has hired new pilots from outside its seniority list. As noted,
once employed, the seniority system has functioned for each
pilot as it did before the filing of these proceedings. As
noted, once employed, the seniority system has functioned for
each pilot as it did before the filing of these proceedings.
Had Continental not employed pilots who were not on its
seniority list the airline would have had to significantly limit its
operations. This would have served ALPA'’s purposes but it
would have made Continental's ability to reorganize
substantially less likely. It was necessary to hire these
A-37
Continental has maintained that it will take returning
pilots only to the extent tha: positions are (or become)
available and will not agrce to “create” positions for returning
strikers by furloughiag new hires.
Continental defends its position by urging to the court
that it has a legal obligation (the oral representations and
positions when they came to work for Continental. It would
appear that they have relied upon Continental's
representations. If Continental replaces these permanent new
hires despite its representation to the contrary, Continental
might well be at the mercy of ALPA at the end of any new
contract term because of its potential inability to employ
replacement pilots should ALPA then undertake a new strike.
Continental would have effectively lost credibility with the
pilot community in this country, risking the probability that it
could not hire replacement pilots in the event of any future
strike threat. For Continental to agree as ALPA suggests
would place a powerful negotiating weapon in ALPA’s hands
with respect to future negotiations. In this court's opinion,
given all of the circumstances of this case, Continental has
valid reason to be concerned over the use of such weapons by
ALPA. In all probability, Continental will not have completed
any * ganization process within the next two, three nor even
five y. ars*. The resulting leverage to ALPA could place in
jeopardy any confirmed plan or arrangement.
The strong public right of the worker to engage in a
legal strike must be observed. However, the working pilots
(including those not on the pre-petition seniority list) and the
other working employees have done what they can to preserve
the value of the debtor for the benefit of all. Once successful
reorganization is achieved or is foreseeable, can the striking
employee be heard to claim that Continental is unreasonable
in not agreeing that the striking employee may return to work
whether a position is available or not and demand his or her
former seniority status as a legal right, when it results in the
new hire being furloughed?
S/ By this is meant the completion of any payout period provided for in a
confirmed pian of arrangement. It is not unusual for such pay penods to
extend beyond three or even five years.
A-39
i
This court cannot agree that a policy such as ALPA
suggests would be in the best interest of the reorganizatio:)
process.
Although any “legal” and/or “moral” obligation of
Continental to the new hires is an important factor, in this
court’s view there is a much stronger reason for sustaining
Continental's position that these needed new hires are now
permanent employees and that they should not be replaced by
Continental to create positions for returning striking pilots as
part of any back-to-work agreement. These reasons are the
public policy of keeping the air carrier flying (as provided in
the Interstate Commerce Act and in the Railway Labor Act)
and in the equally important public consideration and policy of
the Bankruptcy Code that a financially troubled company
make the highest and best use of its assets and facilities in
order to maximize the recovery to creditors and to preserve
the business operation for the economy of the country. It is
not the least of such policy that it promotes the preservation
of this particular job market.
The striking pilots made a choice, although it was no
doubt a hard choice. When one makes a choice, it is not
always possible to continue to retain both options, and in fact
usually this is not the case. When great principles conflict, a
court must attempt to determine what the best overall public
policy must be under the circumstances. These striking pilots
made their decision knowing the potential consequences.
They were aware that Continental was asking them to return,
that Continental needed pilots to expand its operations, a
necessary step if it was to have a successful reorganization,
and that Continental was going to hire replacement pilots on a
permanent basis if they did not return, and that Continental
would not voluntarily allow displacement of these persons who
accepted employment under extremely troubling circumstances.
A-40
23.
A reorganizing debtor must be efficient in its
employment practices, since its ability to survive is at stake. It
Machinists and Aerospace Workers, et al., 416 F.2d 998 (CA 5,
1969) cert. denied, 400 U.S. 992 (1971); Flight Engineers
International Association v. Eastern Airlines, Inc., 359 F.2d 303
(2nd Cir. 1966); International Association of Machinists v.
Central Airlines, Inc., 355 S.W.2d 803 (Civ. App. Texas, 1962)
yao em 371 U.S. 934 (1962), reh'g denied, 371 U.S. 970
(1963).
In the case of Flight Engineers International Assoc. v.
Eastern Airlines, Inc., supra, ALPA itself successfully espoused
the position that its members should permanently replace
In National Airlines, Inc., supra, page 1006, the court
stated: “Under both the N.L.R.A and the Railway Labor Act,
a carrier need not discharge those hired to replace strikers.
A-41
The hiring of replacements for the strikers would have been
consistent with the attempt to restore service.” In Empresa
Equatoriana, supra, the court stated on page 846 that “the
carrier could replace strikers where necessary to its operation.”
On page 847 it said: “The strikers who were
replaced are entitled to be placed on such [a preferential
hiring] list, to be rehired when their replacements quit or
when a similar vacancy arises. Without the hiring preference,
the concept of replacement becomes indistinguishable from
discharge.”
The hiring of permanent replacement employees in a
strike situation has been held to be an acceptable practice
under the National Labor Relations Act. In NLRB v. Mackay
Radio and Television Co., 304 U.S. 333 (1938), the Supreme
Court held that permanent replacements hired in an economic
strike need uot be terminated to make room for returning
strikers. On page 345, the court said it is not *. . . an unfair
labor practice to replace the striking employees with others in
an effort to carry on the business” and that an employer is
“not bound to discharge those hired to fill the places of
strikers upon the election of the latter to resume their
employment in order to create places for them.” See also
Gulf States Manufacturers, Inc. v. NLRB, supra, page 1327 and
1328.
To require the debtor to place in effect at this time rules
which would cause the termination or furlough of these
people who have made a vital contribution to the effort to
reorganize, would in this court's opinion, serve as a bad
precedent for future reorganization cases.
While Continental is free to make the choice of agreeing
or not agreeing with ALPA on this point, this court declines
to accept ALPA's view that Continental has engaged in
A-42
4
=2.«
unreasonable bargaining (or bad faith) in refusing the accept
ALPA's position on this point.
THE STATUS QUO PROVISIONS OF THE
RAILWAY LABOR ACT, THE EMERGENCY WORK RULES,
Seetieiinteetatietit ees: Ghee 8 tt Chagees
11 proceeding on September 24, 1983 Continental unilaterally
implemented new wage rates and work rules for each of its
union groups, including the pilots. Continental undertook this
action notwithstanding that the agreements with the pilots
were not then open for negotiation and, further, the
negotiating procedures of Section 6 of the Railway Labor Act
had not been exhausted, as specified by the Act ("RLA").
The unions argue that notwithstanding § 365 of the
Bankruptcy Code, the status quo provisions of the Railway
Labor Act prohibit any unilateral change in the wage rates or
work rules “on the property” until all negotiations pursuant to
the scheme of the status have been exhausted. The Unions,
including ALPA, argue that there is a difference between
making unilateral changes in a contract which might be
rejected the provisions of § 365 of the Bankruptcy Code and
the statutory provisions of the RLA, which (they allege)
continue the terms of the contracts in effect until the
bargaining procedures have been completed. The Unions
argue that § 365 does not authorize rejection of statutory
requirements, as opposed to contractual provisions, i.e., this
court cannot authorize changes in the wage rates and work
rules of a carrier governed by the RLA until the Section 6
bargaining procedures have been exhausted ALPA no doubt
would concede that such procedure may take years (indeed it
has already taken about nine months since {iling without
effect).
A-43
. 28 -
Unquestionably the Railway Labor Act contains “status
quo” provisions. As noted by the Sth Circuit in the United
Industrial Workers of she Seafarers International Union of North
- : : eae ap arg
320, 329 "the objective of the is
canthaamne of ten aumee Genel Geena pemedes of
the Act have been exhausted." And "As the Supreme Court
stated in Order of Railway Telegraphers v. Railway Express
Agency, 1943, 321 U.S. 342, 347, 64 S. Ct. 582, 586, 88 L. Ed.
788, 792, the failure of the carrier to proceed as provided by
the Railway Labor Act of 1926, then applicable, leaves the
collective agreement in force throughout." The court also
noted with approval the language of Order of Railway
Conductors v. Pitney, 1946 326 U.S. 561, to the effect that the
object of Section 6 is to maintain the status quo pending the
expiration of the period provided by the section for allowing
the process of negotiation, mediation and conciliatic.. io have
a play. It is to prevent changes being made until these
processes have been exhausted or the prescribed waiting
period has expired without bringing them into effect. The 5th
Circuit also noted that the Railway Labor Act is more
concerned than the National Labor Relations Act ("NLRA")
with continuance of the employers operations and the
employer-employee relationship. This is evidenced by the fact
that while bargaining is the first and last step under the
NLRA it is only the first step under the Railway Labor Act in
a ladder that leads to the White House if differences cannot
be resolved.
Generally speaking, this principle is recognized by
virtually all labor law precedents. On the other hand, while
the Supreme Court in Brotherhood of Railway and Steamship
Clerks, Freighthandlers, Express and Station Employees, ALF-
CIO, et al v. Florida East Coast Railway Company, 384 U.S.
238 (1965), recognized the requirement by law for the railway
to abide by all the rates of pay, rules, and working conditions
A+
- 29.
specified in the existing collective bargaining agreements until
the termination of the statutory mediation procedure, the
court allowed exceptions “upon specific authorization of [the
U.S. District] court after finding a reasonable necessity
therefore". The Supreme Court therein recognized that one
of the primary purposes of the Railway Labor Act is to keep
the carrier operating. On page 246 the court notes "that the
procedures of the Act are purposely long and drawn out,
based on the hope tha: reason and practical considerations will
provide in time an agreement that resolves the dispute”. In
that nonbankruptcy case, the Supreme Court held that under
emergency conditions the carrier would implement new terms
and conditions governing the labor force as long as those
changes were necessary for the railroad to fulfill its duty to
continue operations, provided the power to make such changes
is closely confined and is supervised. Thus, the Supreme
Court has recognized that the status quo provisions of the
Railway Labor Act must, in some instances, bend to the
exigencies of the situation.
The evidence in the instant case shows that, had
Continental not been able to significantly reduce its labor
costs (by the unilateral implementation of less costly and more
efficient work rules and pay rates) at the time it filed this
proceeding, Continental would have run out of cash and would
no longer be operating at the present time. It would have
had to shut its doors even before this hearing commenced.
Continental was simply in no position to continue its
operations under the wage rates and working conditions
contained in its agreements with the Airline Pilots Association.
It did not have the money to do so nor the ability to acquire
it. In addition, under the circumstances, Continental could not
even have reduced its operations (as it did beginning
September 27, 1983) and still have complied with the terms of
its agreement with the ALPA. Continental reduced them
A-45
- 30 -
significantly, and it needed the low cost, the efficiency, and the
flexibility of its emergency work rules in order to do so.
ALPA’s contention cannot be sustained under the law.
By virtue of § 1167 of the Bankruptcy Code (11 U.S.C. §
1167), the U.S. Congress provided that notwithstanding § 365
a debtor-in-possession under Chapter 11 of the Code cannot
change the wages or working conditions of employees of a
debtor subject to the Railway Labor Act except in accordance
with Section 6 of such act. Changes in wages and working
conditions would and are otherwise authorized by § 365 of the
Bankruptcy Code. The Congress then expressly provided in §
103(g) of the Bankruptcy Code that Subchapter IV of Chapter
11 applies only to a case under such chapter concerning a
railroad. Section 1167 is part of Subchapter IV of Chapter 11.
Continental is not a railroad. Under the statutory scheme
thusly set forth Congress, in its wisdom, by clear implication
provided that a debtor governed by the Railway Labor Act
need not comply with Section 6 of that act before making
unilateral changes in wages and work rules if it is in Chapter
11 and is not a railroad. The statutory scheme of the
Bankruptcy Code thereby provides for the action taken by
Continental in this instance. It might well be noted that the
Bankruptcy Code was enacted in 1978, the same year that
Further, since the contracts are no longer immediately
enforceable after filing, the changes in wages and work rules
are accomplished not by the employer’s unilateral action, but
rather by operation of law. NLRB v. Bildisco & Bildisco,
supra, 104 S. Ct. 1188 at page 1200. In Bildisco, the Supreme
Court laid down a pragmatic rule in dealing with the National
Labor Relations Act. This court is persuaded that the
reasoning of the Court in that case is likewise applicable here
in relation tothe RLA As noted above, this debtor would
not have survived implementation of the suggestion by the
A-46
oS.
Airline Pilots Association that Continental could make no
post-filing change in its wage rates and working conditions.
In Bildisco, the Court held that the authority of a
debtor-in-possession to seek rejection of the collective
bargaining agreement was not qualified by the restrictions of
Section 8(d) of the NLRA, which section established detailed
agreements. The Court noted the policies of flexibility and
equity built into Chapter 11 of the Bankruptcy Code. These
policies were desperately needed by Continental at filing in
order to continue its duties as a carrier. As noted,
performance of this duty to continue public service is one of
the primary purposes of the RLA. At least to that extent, the
Bankruptcy Code and the RLA are entirely consistent and
compatible.
The Supreme Court did not fully accept the "new entity”
theory utilized by the Court of in its Bildisco opinion,
682 F.2d 72 (3rd Cir. 1982), but the Court did observe that
the debtor-in-possession, while the same “entity” which existed
before the filing of the bankruptcy petition, is nevertheless
empowered by the Bankruptcy Code to deal with its contracts
and property in a manner that it could not have done absent
the bankruptcy filing. The court noted that the fundamental
purpose of reorganization is to prevent a debtor from going
into liquidation with an attendant loss of jobs and possible
misuse of economic resources. The court noted further that
ne ew one See
in-possession was saddled automatically with the debtor’s prior
collective bargaining agreement. The Bankruptcy Code
specifies that the rejection of an executory contract which has
not been assumed constitutes a breach of the contract which
relates back to the date immediately proceeding the filing of a
petition in bankruptcy. 11 U.S.C. § 365(g)(1). The court
further noted that if the debtor-in-possession elects to
A-47
i
continue to receive benefits from the other party to an
executory contract pending a decision to reject or assume, the
debtor-in-possession is obligated to pay for the “reasonable
value” of those services, which, depending upon the
circumstances of the contract may be what is specified in it.
Should the debtor-in-possession elect to assume the executory
contract, however, it assumes the contract cum onere.
The Supreme Court conciuded that the filing of the
petition in bankruptcy means that the collective bargaining
agreement is no longer immediately enforceable and may
8(d), and that it follows that the debtor-in-possession need not
comply with the provisions of Section 8(d) prior to seeking the
bankruptcy court’s permission to reject the agreement. The
court further stated that in a Chapter 11 case the
“modification” in the agreement has been accomplished not by
the employers unilateral action, but rather by operation of law.
The court further noted that even the National Labor
Relations Board had conceded in that case that the
cumbersome and rigid procedures of Section 8(d) need not be
imported into the bankruptcy proceedings. The Supreme
Court also held that the debtor-in-possession need not bargain
to impasse before seeking rejection and that these provisions
of the National Labor Relations Act must be subordinated to
the exigencies of bankruptcy.
In this court’s opinion, the rationale of the Supreme
Court in Bildisco is equally applicable to the Railway Labor
Act and the status quo provisions of that act must give way to
the realities of bankruptcy. A company whose financial life is
threatened should not, under rational public policy be forced
to adhere to principles which, though of good service in times
A-48
~
of financial in thi
——— cial health, would, as in this case, jeopardize
The unions’ attempt to distinguish Bildisco because it
dealt with the National Labor Relations Act, whereas
Continental is subject to the Railway Labor Act. However,
this court is not persuaded that in the situation that
Continental now finds itself, there is any persuasive difference
from the parameters outlined by the Supreme Court.
If ALPA’s argument is followed, the statutory "status
quo” provisions of the Railway Labor Act would put a
financially troubled debtor to the task of an arduous (and
perhaps impossible) process before it could obtain the
economic relief which might well be necessary to its continued
operation. The result in many instances, including this one,
lip service was being given to the alleged purposes of the
Railway Labor Act, and many jobs would be unnecessarily lost.
Clearly the overriding public policy is that more jobs should be
saved under these unfortunate circumstances rather than that
higher wages be paid for a short period of time before the
debtor's financial heart stops beating. The demise of a
company is too much of a price to pay for strict adherence to
tend to precipitate this demise could not truly be consisten t
with the spirit and purposes of the RLA, much less the
Bankruptcy Code.
Once a company is legitimately in Chapter 11, as
Continental has been found to be, the provisions of Title 11
and the principles of Bildisco are applicable to its collective
bargaining agreements even though they are otherwise
governed by the RLA. Unilateral changes may be made by
the carrier at filing, at least where rejection of the agreement
is later approved by the court. However, the debtor is still
A-49
Cutten din die extn ety
through a Chapter 11 proceeding. Continental requested
and had it been possible to have a hearing
immediately, such relief would have been granted by this
position, the changes it made in its level of flying, its
competitive situation, and the uncertainties that existed
immediately after the filing of this petition.
The fact that other urgent matters were pending on this
court's docket prevented it from hearing the evidence on the
motion to reject for a few months. When the evidence did
begin on January 30, 1984, it extended until April 28, 1984.
It appears to this court that to have required
iations between the time of filing and the institution of
contractual provisions than those necessary to obtain these
same services. Continental would have paid more than the
reasonable value of these services based on market rates.
given all of the circumstances im this case.
A-56
- 35-
Further delays in restricting Continental's flying
operations would also have resulted in loss of those
advantages it had as a going business. At worst, this could
have resulted in the destruction of its Lwsiness and at best it
would have severely diminished its ability to reorganize. In
either of these events, it would have stopped payment of
wages to all employees for either a longer period or for all
time.
As has been noted, deregulation has caused some
difficulty to the industry majors, including Continental. Other
carriers have furloughed em sloyees and many unions have
granted concessions to various carriers in light of the
increasing competition. Continental has suffered substantia!
losses since deregulation and now has a substantial debt
structure and debt service. This debt service makes it difficult
to compare Continental to other airlines in terms of what
costs are necessary for it to be profitable.
An effort has been made to show that Continental was
solvent when it filed its proceeding and that rejection should
not be permitted. The effort to prove solvency stemmed from
the appraisal of Continental's air fleet at an amount greater
than that shown on its books. In other words, its airplanes
have a greater mariet value than book value. It is axiomatic
that for Continental to realize market value from these
airplanes they would have to be sold. If they were sold
Continental could not operate then. Without airplanes to
operate, Continental would have additional obligations from
rejections of its numerous leases on ground space and from
other executory contracts. Whether the net result, taking all
is solvent is speculative at this time. No effort was made to
show this result. Resulting obligations from rejection of
A-51
. o
executory contracts are not now on the books of Continental
as a liability.
margin. A mage ent nn a
Unless a company can become profitable and maintain
that posture consistently, it is inevitable that it go out of
business. If a reorganization proceeding is to succeed, prior
accrued indebtedness must be paid out of future profits
(uniess the company is liquidated). If there is no excess of
money over and above operating expenses, there is nothing to
pay prior indebtedness with; whether it be secured or
A-52
A-53
When
27, 1983 down for
three days), it severely reduced its fare level on all flights in
order to entice
if
uy
:
i
:
i
!
iced tl ives (and/or Conti 1) out of the existing
market.
—
10 and 727 pilots on domestic flights. In addition, pilots got
substantial vacation time (between 16 and 44 days per year
depending on seniority). This vacation time can, at leasi in
part, be used to further reduce scheduled flying ume.
Federal Aviation Regulations permit utilization of pilots
up to 100 “block hours” in a calendar month, not to exceed
1,000 block hours per year.
It should be noted that traditionally Continental's labor
force has historically been over 50% non-union, 6,776 out of
12,008 employees pre-petition and 3,553 out of 5,763
employees post-petition (56.4%) as of January 31, 1984.
As observed above, more than 50% of the currently
active employees in each unionized job category* (and more
& At the Gime the IAM struck, 1201 am EDST, Angus 13, 1953,
Conunental sok all three of as fhght tuchens (at Los Angetes, Denver and
Houston) and contracted out ths service and that of catun cleaning and
(connnued |
A-S®
‘jt.
than 80% of the active flight attendants) have elected to cross
their own union’s picket lines. This appears to be indicative
of these employees’ acceptance of the need of Continental for
their willingness to work at the wage levels and under the
working conditions (including increased productivity) being
currently offered by Continental.
Continental is offering a living wage to its currently
flying pilots. In addition, it is offering to its employees a
profit-sharing plan guaranteeing each a participation in 25% of
the profits of the airline from the first dollar upward. It has
also proposed to this court for approval a stock ownership
plan which would make the employees 35% owners of the
company on a fully diluted basis. They as a group, would then
be the largest shareholder of the company. Overall, morale
appears to have increased post-filing to a very high level. As
of April, 1984, Continental had grown to approximately 6,000
ee ern ey ae Pee
As of April 1, 1984, Continental had 1,070 active pilots,
_ including those currently in training or on leave. Of this
number, 494 were new hires and 576 were from its pre-
petition seniority list. It employed 1,471 flight attendants, of
which 270 were new hires and 1,201 were from its pre-petition
seniority list. All of the ground instructors were still on the
payroll as were 21 out of the 35 dispatchers (14 dispatchers
were still on furlough).
6 (...continued)
fueling because it could contract this service from third parties substantially
cheaper than it could perform them with LAM employees under the terms of
A-57
- 42 -
Beginning in October, 1981, Continental management
personnel endured a 10% pay cut and non-union employees
had to forego scheduled pay increases. In January - February,
personnel department positions were reduced by 35%
and general staff levels in other offices were reduced 15%. In
1983, 25% of the remaining management staff jobs and 15%
of the line management positions were eliminated. Non-
unionized personnel and management were required to work
extraordinarily long work hours and even split shifts in some
instances. Just prior to the filing of bankruptcy, management
had a 15% pay cut and reduction in benefits, and,
as noted, non-unionized employees voted to accept similar
reductions.
pict te heater eet tere rag
to these management pay cuts, salaries
increased (snapped back) in part already. However, under the
evidence, this court is convinced that Continental management
personnel have made sufficient sacrifices to justify rejection of
the respective union contracts when balancing the rights
between them. This is particularly true when you consider the
high level of wages and salaries which had been bargained for
by the various unions and agreed to by Continental, as set
forth in these contracts.
A-58
- 43-
Labor costs, were a major factor contributing to
Continental’s bankruptcy. If the contracts had not been
rejected, the administration claims resulting from reinstating
the contracts (and their resulting high cost) from the date of
filing would in and of itself be highly damaging to the
prospects of reorganization. Further, if the company is
liquidated under Chapter 7, the contracts would be rejected as
a matter of law, 11 U.S.C. § 365(d), and this rejection would
likewise relate back to the date of filing.
Low labor cost are necessary for Continental at the
present time and at least for the near term, foreseeable future,
in order for Continental to be competitive.
Virtually no effort was made by ALPA to show that
Continental could afford to pay materially more to its pilots
than it is now doing under the emergency work rules. The
only effort was a calculation to show that if Continental raised
its fare levels without losing any of its passenger miles, it
could do so. However, no evidence was introduced that
convinces this court that if Continental materially raised its
fares it would not lose a substantial portion of its flying
customers.
There is little loyalty, if any, among passengers.
Passenger miles are essentially fungible. Ticket prices remain
the single most important element in attracting the flying
public.
The court rejects the motion that Continental could
materially raise its ticket prices and materially increase its
pilots labor costs, unless, and until, its competition also raises
ticket prices. That adventure has already been embarked
upon by Continental in the past; all to its financial dismay.
A-59
-44.-
It appears to this court that substantial jobs will be
business plan can include a return to all of Continental's pre-
petition labor costs.
Rejection will no doubt result in reduction in standards
of living of many of the employees, and possibly even hardship
in certain cases. Nevertheless, under the circumstances and
the economics currently prevailing, there appears to be no
reasonable alternative.
The unions argue that this court cannot make necessary
determinations in order to allow rejection of the contract in
light of the fact that Continental has not offered a plan of
arrangement, because this court cannot assess the viability of
such a plan or the need to reject the contracts as an integral
part thereof. This court disagrees. The Supreme Court in
Bildisco understood the difficulties in assessing the outcome of
a potential reorganization in the beginning stages of such a
proceeding. At this time the court cannot say that
Continental will have a confirmed plan of reorganization, nor
even that the confirmed plan will be successful, but it has
determined that without rejection no viable plan providing for
A-60
. 45 -
future operation by Continental of its own air fleet is possibie.
The Supreme Court noted that "the Bankruptcy Court inquiry
is of necessity speculative, and it must have great latitude to
consider any type of evidence relevant to this issue." I believe
that the findings of this court have satisfied this issue as
required by Bildisco and other cases. In this instance, the
inability of the parties to reach an agreement is in itself a
deterrent to any plan of arrangement.
There was testimony that Continental could not afford
any substantial increase in its current labor costs. A return to
pre-petition labor costs under the ALPA contracts would
preclude Continental from effective competition with the low
cost, new entrants; some of which have negotiated contracts
with the very unions which oppose Continental’s motion to
reject.
The unions argue that if the court allows rejection of the
agreements, it should only allow rejection of those parts of the
agreements that are burdensome and (presumably) should
require affirmation of all other parts. This court has no true
way to know the financial impact of each particular provision
in the agreements. The Supreme Court in Bildisco noted that
the bankruptcy court “need not determine that the parties
have bargained to impasse or make any other determination
Qutside the field of its expertise.”
The ALPA and UFA contracts are extremely complex.
This court could not possible rewrite them for the parties. If
it tried to do so, in all likelihood serious mistakes would be
made. As noted in the Bildisco opinion, the National Labor
their own agreements on terms and conditions of employment
free from governmental interference. The court cited Howard
Johnson Company v. Hotel Employees, 417 U.S. 249 (1974);
NLRB v. Burns Security Services, 406 U.S. 272, 282-294 (1974).
A-61
collective bargaining agreements.
There is no provision in the Bankruptcy Code which
would provide for rejection in Historical case authority
Italian Cook Oil Corp., 190 F.2d 994, 996 (CA 3 1951) for
that proposition.
Continental has a continuing duty to bargain with the
certified representatives of its employees in good faith. These
The unions next argue that if the court is going to allow
rejection of the agreements it should impose conditions on the
99 C.CH. Labor case P10, 550 (U.S.D.C. No. Dist. Indiana,
Ft. Wayne Division, case number 83-10127) August 2, 1983, as
The concessions that were requested pre-petition do not
necessarily relate to the current labor cost requirements of
Continental. The question of which provisions are in fact
other hand, it is certainly fair for the unions to bring up these
tentative agreements as well as the non-economic provisions in
If this court has the authority to impose such conditions
it declines to do so in this instance.
The unions, including ALPA, have not seriously
challenged with evidence that Continental is in serious
financial condition or that it was losing money, nor that it
needed serious economic concessions if it were to continue.
Nevertheless, ALPA urges that the emergency work rules have
inflamed the pilots.
The insult to the unions stems from the affrontery of the
employer escaping from the “bonds” of their labor agreements
before their very eyes; and in a highly visible way. However,
this employer, while it appears to be the same, how has
different characteristics and powers. Section 1107 of Title 11
proscribes that a debtor -in-possession has all of the rights,
duties, and responsibilities of a trustee. Were there to be an
“actual” trustee (ie., a disinterested third person who could be
perceived as acting on behalf of all interested parties) this pill
A-63
(having this modicum of sweetener) might not be so difficult
to consume without even the benefit of liquid refreshment.
To comply with the RLA, ALPA (as well as
Continental) must continue to bargain. ALPA must lay aside
other considerations and recognize that this is an economic
problem. Economic problems are rarely, if ever, resolved in
Whether, ALPA has alienated the working ALPA pilots to the
extent that it has lost the leverage of support from this group
remains to be seen. However, ALPA and Continental must
bargain from the relative positions in which they now find
|
Signed this 17th day of August, 1984.
R.F. Wheless, Jr.
U.S. Bankruptcy Judge
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 89-2455
JOSEPH E. O'NEILL, PHILLIP M.
ORDWAY, JAMES LOWRY, and
JACK PENDLETON, Etc.,
Intervenors-Appellants.
Appeal from the United States District Court for the
Southern District of Texas
(
( April 13, 1990 )
i
AEE
at bi HE
&
E
Hit
RHEE
Assaciation CALPA') exnonted 0 Lover of
a te !
vu a A
On August 18, 1982, Texas Air Corporation ("TAC’), the
rte ee a a ee
a He
of
-funtiiel ie di 7
ia
We conclude that the district court correctly denied the
O'Neill Group's inotion to intervene, and we affirm the
HHT
j o8i
mH
judgment of the district court for the following reasons:
were not
might
A the
disputes
parties to
grievance
arbitration.”
F.2d 167
rehance
eH
Retail Clerks Int'l Ass'n v. Lion Dry Goods, inc.. 369 US. 17,
26 (1962); Morales v. Southern Pacific Transp. Co., 894 F 2d
743 (Sth Cir. 1990) (“[s}tate lew claims which grow out of the
employment relauonship can constitute ‘mmor disputes under
the Act, even when the claims do not arse directly from the
collective bargaining agreement itself") The collective
bargaining representative has the exclusive mght to bargain for
and bund all employees im its pursdiction where a “major
dispute” is concerned. Burley J. With respect to a “minor
dispute,” however, settlement by the umion “in the absence of
implied authority to settle the pilots’ claims against TAC. We
A-70
i
;
i
f
:
4.
]
ne ea conten of
agreement ALPA, which triggered ALPA’
strike. Seutiegtuentemtdéean
contained detailed back-to-work provisions clearly resolved a
“major” dispute. In negotiating that settlement, ALPA he the
authority to settle all claims arising out of that dispute,
including claims, such as those under the Side Letter, that
might in other circumstances be deemed “minor” disputes.
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For the foregoing reasons, the judgment of the district
court is
AFFIRMED.
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the training and staffing necessary for the proper conduct
ot Coutunade baat,
2. This Verified Counterclaim alleges three causes
of action arising under the following laws:
b. The common law of the State of Texas.
3. This Court has jurisdiction under Title 28, U.S.
Code, § 1331, 1337, 2201, 2202; Title 29, U.S. Code § 185;
and has pendent jurisdiction of Continental's Texas common
law tort claim.
4 Personal jurisdiction and venue are based on
8. On October 1, 1983, ALPA went on strike
against Continental. The strike has been a long and bitter
one. Rather than bargain in good faith with Continental to
resolve their disputes, ALPA has chosen instead to resort to
economic coercion and, at times, to violent and unlawful
Rejection of ALPA’s Collective Bargaining Agreements the
Bankruptcy Court found:
[T}his court is concerned that the Airline Pilots
Association does not intend to reach an agreement with
Continental on terms the airline can afford. ALPA
appears to have strong motives for seeing that the carrier
is shut down as an example to the other carriers whose
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to shut down Continental. The Airline Pilots Association
has made it clear, and has convinced this court, that its
In the courtroom, ALPA has verified that its purpose is
primary aim is to shut down Continental Ai
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working pilots into joining the strike thereby shutting down
Continental's flight operations entirely.
14. ALPA’s activities have also been focused directly
at Continental’s business operations. In December 1983,
certain ALPA members met and planned the simultaneous
contamination of Continental facilities in Denver and Houston
with toxic chemicals for the purpose of causing major
disrup.'ons to Continental's flight operations during the
15. As a result of illegal strike actions by ALPA
members Continental was forced to seek and obtain
Temporary Restraining Orders and/or Preiiminary Injunctions
to er‘oin such conduct at airports serving Houston, San
Antonio, Dallas-Ft. Worth, San Diego and Los Angeles.
16. At various times since the commencement of
ALPA’s strike, ALPA through its agent members has made
and induced others to make phony reservations on Continental
flights in an effort to injure Continental by causing substantial
"no-showing” on Continental flights.
RB ; ‘. Wi lof R - f ALPA
17. In August, 1985, Continental received a petition
signed by over 1,400 Continental pilots stating that those pilots
no longer wished to be represented by ALPA. The number
of pilots signing the petition was in excess of a majority of all
striking pilots, who would be considered eligible voters in any
election conducted under the auspices of and in accordance
with the rules of the National Mediation Board. To honor
the wishes of its pilots, Continental withdrew its voluntary
recognition of ALPA as representative of its pilots on August
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26, 1985. See Exhibit 1 attached to this Verified
Counterclaim.
18. ALPA continues to claim that it is the collective
bargaining representative for Continental's pilots. ALPA has
not followed the Railway Labor Act’s statutory procedures for
resolution of its representation dispute with Continental.
19. ALPA has chosen to resort to unlawful economic
coercion and self-help to resolve its representation dispute
with Continental. ALPA is attempting to disrupt Continental’s
future flight operations by sabotaging the "System Bid” process
utilized by Continental to fill vacant pilot positions and to
ensure the training and staffing necessary for the proper
conduct of Continental’s future flight operations.
C._The System Bid Process
20. Continental’s pilot employees have historically
determined their assignment to vacant positions through a
process known as the "System Bid” process. Continental’s
pilot positions are classified by rank or “status,” (i.e. Captain,
First Officer, Second Officer) "domicile (base city)" and
“equipment type." Each new vacancy (and any secondary
vacancies) are awarded by status, city and equipment type
according to pilot seniority within Continental. Each bid
submitted specifies a pilot’s preferred positions (in descending
order of preference) by status, city and equipment type.
21. Continental’s System Bid process is extremely
complicated due primarily to two factors: (1) the multiplicity
of factors affecting a bid; and (2) the training which is
required once pilots are awarded new positions. The rank of
Captain is the most senior position and pays the highest salary:
the rank of First Officer (co-pilot) is generally regarded as the
next most desirable position; the rank of Second Officer
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ight Engineer is generally regarded as the least desirable
tesa te Each of these three positions have
different job duties, qualifications and training requirements
pursuant to FAA regulations. Pilots are or will be based in
one of five domicile locations -- Denver, Colorado, Houston,
Texas, Los Angeles, California, Honolulu, Hawaii and Guam.
Continental currently uses five types of equipment -- DC-9’s,
DC-10's, MD-80's, Boeing 727's and Boeing 737’s. The DC-
10 and 727 equipment require the assignment of three pilots
per aircraft crew; the other equipment does not require a
Second Officer-Flight Engineer and is staffed by a two-pilot
crew. To expand its fleet in 1986, Continental plans to add
additional Boeing-737’s and other aircraft types, such as either
Boeing-757 and/or the Airbus A-300.
22. Since a system bid is the means by which
Continental plans its pilot veo —: ~~ - ewe!
which pilots are promoted or posi it is €
for Continental and its pilot employees that the bidding a
process be conducted properly. pees | Aenageer ae
established ‘fic biddi hict on ll known
to Continental’s pilots and to ALPA. A pilot who inte
bid for a vacant position must normally submit his bid in =
person on the official company bid form, which is in triplicate.
A copy of Continental's official bid form is attached to this
Verified Counterclaim as Exhibit 2. For a bid to be valid, the
form must normally be submitted in person and signed
"received" by a member of Continental’s management.
23. Once pilots have submitted their bid forms to
Continental, the sole determinant of what vacant position they
will receive is their seniority level. os rmammme
possesses different instrumentation operating
characteristics; the Federal Aviation Regulations established by
the Federal Aviation Administration require specific training
and qualification for pilots assigned to each position on each
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type of aircraft. See 14 C.F.R. Part 141. Pilots who are
program are dramatically extended
by two factors: (1) the need to continue and staff ongoing
flight schedules while a significant number of pilots are
removed from such schedules to undergo training, and (2) the
“ripple effect" of contingent vacancies created when incumbent
pilots are promoted to new positions, thereby opening their
current positions as secondary vacancies available to less senior
pilots.
24. The training system which Continental has
established to qualify its pilots to operate the various kinds of
equipment in its fleet is extremely costly and time-consuming.
Depending upon prior training and experience, pilots attend
training sessions full time for a number of weeks or even
months. They receive in excess of 120 hours of classroom
instruction and flight simulation.
25. Continental has established extensive procedures
to ensure that such retraining is accomplished in a timely
manner so that Coutinental has a sufficient number of trained
pilots to staff new vacancies for each equipment type at each
base and to operate its fleet on schedule. Continental thains
its pilots, subject to availability of training fccilities, in all
equipment statuses simultaneously. Junior pilots (or new\hires
if necessary) will fill the entry level second officer positions.
26. In order for this System Bid staffing and trairling
process to proceed, however, it is imperative that the Syst
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training and flight duty as scheduled. Should a il to
appear, the next most junior bidder is unlikely to be available
as an immediate replacement because that more junior pilot
will have already been retrained for another newly awarded
bid position. Even if the next junior pilot were available for
retraining, however, he could not be removed from his then
current position without creating a secondary vacancy and an
attendant “ripple effect" throughout the seniority list. V/hen
that ripple effect played out, Continental would have suffered
a multitude of needless retraining requirements, with attendant
delays in producing trained pilots when needed, and would still
endup short staffed for new equipment and thus unable to
operate the aircraft as planned. For each pilot who completes
training but fails to appear for flight duty Continental will be
required to train up to eight additional pilots, at a total cost
of approximately ninety thousand dollars.
D. The Current System Bid
27. On September 9, 1985, Continental posted
"Supplementary Base Vacancy Bid 1985-5" (Exhibit 3 to this
Counterclaim). This bid announced 380 new Captain and
First Officer positions which will be available in 1986 due to
the continued expansion of Continental’s aircraft fleet and
flight schedules. The bid required all participating pilots to
submit their bids by 12 noon CDT on September 18, 1985.
Continental expects that the entire training process which will
follow this system bid wil! require the training or retraining of
approximately 1,200 pilots and to last eleven months;
Continental estimates that this training will cost approximately
10-12 million dollars.
28. The scheduling of Continental’s training
procedures has required elaborate advance planning, which
necessarily took into account such complex factors as the
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availability of personnel, availability of facilities, maintenance
of the airline’s planned flight schedule and availability of
equipment. The purpose of this process is two fold: (1) to
insure that Continental is able to operate its flight schedule
with no disruption in service, inconvenience to the traveling
public or loss of revenue during the training period; and (2) to
provide Continental with qualified pilots to fly its equipment
on schedule at the end of such training period.
29. The comprehensive system which Continental has
developed to fill the new jobs is premised on the basic
new positions will report for training as scheduled and will
report to work in their new assignments once their training is
completed. If more than a handful of pilots who bid for and
receive new positions do not report to training or work once
their training schedule is completed, then it will be impossible
for Continental to operate all of its scheduled flights. Such a
disruption in Continental’s service would have a devastating
and long term impact on the airline. Moreover, it would
adversely affect the positions of Continental’s other pilots
participating in the System Bid.
E. ALPA’s Scheme To Harm Continental’s Operations and
Its Nonstriking Employees By Sabotaging Continental’s
System Bid. _
30. On September 15, 1985, almost two full years
after beginning its strike and soon after Continental withdrew
its voluntary recognition of ALPA, ALPA suddenly told its
striking members to (1) submit form letters stating an
“unconditional offer” to return to work and (2) to participate
in the current System Bid using a form which did not comply
with Continental’s established procedures. See Letter from
Dennis Higgins, ALPA Continental MEC Chairman to all
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Continental Striking Pilots, attached to this Verified
Counterclaim as Exhibit 4.
31. In public statements, ALPA has made it clear
that it is not calling off the strike but is simply changing
tactics. Captain Henry Duffy, President of ALPA, is reported
to have said that “for strategic and humanitarian reasons, our
best action would be to allow striking pilots to try to get back
on the property if they are so inclined." (Emphasis supplied).
ALPA has also pointedly stated that "there is something to be
said for having your people back on the property." See ALPA
Press Release attached to this Verified Counterclaim as
Exhibit 5.
32. Many of ALPA’s striking pilots (all of whom have
continued to accrue seniority during the strike) have attained
levels of seniority which would make them eligible to win their
bids for Captain positions on new equipment which require
33. ALPA has instructed and directed its striking
By this action, ALPA has demonstrated its malicious and
process ) ) ym ene ~~ eon
and to di i "s proper ens
the pilot training and staffing necessary for the proper conduct
of Continental's ‘light operations. ALPA’s apparent objective
is to disrupt Continental's flight operations and to deprive _
Continental's working pilots of opportunities to advance within
Continental.
34. The leadership of ALPA is composed of veteran
pilots who are aware of the importance of Continental's
bidding process to its schedule operations. They know that if
any significant number of pilots fail to report for training or
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flight duty as scheduled, the consequence would be to cripple
Continental’s ability to implement the airline’s planned flight
schedule and to cause serious and irreparable harm to
Continental. ALPA has ordered its striking members to
submit bids to Continental even though they do not intend to
return to work with the malicious and unlawful intent to
interfere with Continental’s operation of its business and its
ability to operate in interstate commerce.
35. As of September 18, 1985, the date on which the
bidding closed, over 500 striking pilots submitted bids to
Continental. Many of the bids submitted by striking pilots did
not comply with Continental’s established bid procedures. As
a result of ALPA’s actions and statements, Continental does
not know how many, if any, of these striking pilots intend to
return to work. ALPA’s conduct has tainted the validity of
the offers to return to work and system bids of all striking
pilots.
FIRST CAUSE OF ACTION
36. Continental repeats and realleges the allegations
in Paragraphs 1 through 35 as if fully state herein.
37. By its aforesaid conduct, ALPA is unlawfully
engaging in economic coercion and self-help to resolve its
dispute with Continental over representation. Such conduct
violates Section 2, First and Ninth of the Act, 45 U.S.C. §
152, First and Ninth. In the event that ALPA’s claims of
continuing representative status are correct, the aforesaid acts
of ALPA also violate ALPA’s duty to bargain in good faith
and to “exert every reasonable effort to . . . avoid any
interruption to commerce or to the operation of any carrier . .
." contained in § 2, First and Second of the Railway Labor
Act, 45 U.S.C. § 152, First and Second. The Norris-
LaGuardia Act, 27 U.S.C. § 101 et seg., governing injunction
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of peaceful labor disputes has no application because the
actions to be enjoined are in violation of the Railway Labor
Act. Brotherhood of Railroad Trainmen v. Chicago River and
Indiana Railroad, 353 U.S. 30 (1957).
38. Unless enjoined by the Court, ALPA will
continue its illegal activities in violation of the Act.
39. Continental has no adequate remedy at law.
ALPA’s course of conduct has caused an unless enjoined will
continue to cause substantial irreparable injury to Continental.
SECOND CAUSE OF ACTION
40. Continental repeats and realleges Paragraphs 1
through 35 as if fully stated herein.
41. | ALPA’s tampering with the bid process violates
the valuable right active pilots otherwise would enjoy to bid
for and assume preferred positions. This conduct maliciously
interferes with the active pilots’ business relationship with
Continental and the right of active pilots to be free of
coercion under Section 2 of the Act, 45 U.S.C. § 152.
THIRD CAUSE OF ACTION
42. | Continental repeats and realleges Paragraphs 1
through 35 as if fully stated herein.
43. The acts described in Paragraphs 30 through 35
above were committed by ALPA with malice and for no lawful
purpose.
44 The acts described in Paragraphs 30 through 35
above interfered with Continental’s business relations with its
employees and customers.
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45. In committing the acts described in Paragraphs 30
through 35 above, ALPA had no just cause or excuse for
interfering with Continental’s business relations with its
employees and customers.
47. The acts of ALPA described in Paragraphs 30
through 35 have caused and, if not enjoined, will continue to
cause actual damage to Continental in an amount in excess of
10 million dollars.
PRAYER FOR RELIEF
WHEREFORE, Continental prays that the Court:
. 1. Issue a S—- injunction, the same to be
made permanent on hearing, directing and requirin
ALPA, its officers, agents, employees, and wnten and all
persons acting in concert or participation with them to cease
and desist from conducting, continuing in or engaging in
efforts to interfere with Continental’s system bid in any way;
to cease and desist from instructing nonstriking pilots to
submit bids whether or not they intend to return to work; and
to cease and desist from interfering in any way with
Continental’s normal operations;
2. Direct ALPA to issue such notice and
instructions and take all other necessary steps, including intra-
union discipline, to carry into effect the order of this court;
3. Declare the rights of the parties;
4. Award Continental damages against ALPA for
losses and injuries resulting from ALPA’s unlawful acts;
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5. Award Continental its attorneys’ fees and costs in Rachel Suarez, Esq.
this action together with all other relief that the Court deems Assistant General Counsel
just and proper. Continental Air Lines, Inc.
2929 Allen Parkway
Respectfully submitted, Houston, Texas 77019
AKIN, GUMP, STRAUSS, HAUER & FELD
Attorneys for Defendants
By: Continental Air Lines, Inc.,
John J. Gallagher, P.C. Debtor-in-Possession, and
Attorney in Charge Texas International, Inc.
David P. Callet, P.C. Debtor-in-Possession.
Andra Barmash Greene
1333 New Hampshire Avenue, N.W.
Suite 400 Dated: September 25, 1985
Washington, D.C. 20036
(202) 887-4000
and
Leonard M. Parkins
SHEINFELD, MALEY & KAY
3200 First City Tower
Houston, Texas 77002
(713) 658-8881
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This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.