Appendix — Century Brass Products, Inc. v. International Union, United Automobile, Aerospace & Agricultural Implement Workers, 107 S. Ct. 433 (1986) (No. 86-439)

6 - 4 39 ) ' aaa Court, U.S.

No. Pen & wD

—*

IN THE | SFP 16 1986

Supreme Court of the United Biers: SPANIOL, JR.

CLER

OCTOBER TERM, 1986. “

7)

IN RE: CENTURY BRASS PRODUCTS, INC.,

Debtor.

CENTURY BRASS PRODUCTS, INC.,

Petitioner,

—against—

INTERNATIONAL UNION, UNITED AUTOMOBILE,

AEROSPACE & AGRICULTURAL IMPLEMENT

WORKERS OF AMERICA, ET AL.

Respondents.

APPENDIX TO PETITION FOR A WRIT OF

CERTIORARI TO THE UNITED STATES COURT

OF APPEALS FOR THE SECOND CIRCUIT

THOMAS M. CLOHERTY

(Counsel of Record)

JOHN M. OLEYER

Lissa J. PARIS

THOMAS J. JOYCE

MuRrRTHA, CULLINA, RICHTER and PINNEY

CityPlace—P.O. Box 3197

Hartford, Connecticut 06103

Telephone (203) 240-6000

Attorneys for Petitioner

TABLE OF CONTENTS

APPENDIX A PAGE

June 30, 1986—Opinion of the United States Court of

Appeals for the Second Circuit ......---++ss++005 la

APPENDIX B

November 7, 1985—Decision and Judgment of the United

States District Court for the District of Connecticut .. 25a

APPENDIX C

July 26, 1985—Decision and Order of the United States

Bankruptcy Court for the District of Connecticut .... 35a

APPENDIX D

June 30, 1986—Judgment of the United States Court of

Appeals for the Second Circuit .......--+++++555: 62a

APPENDIX E

August 13, 1986—Order of the United States Court of

Appeals for the Second Circuit Denying Petition for

Rehearing ....... ccc cc ccc ccceccceceseccececs 64a

APPENDIX F

Seatute Pavolved ... ccc ccc ccc we sencccceesaeceness 66a

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APPENDIX A

June 30, 1986—Opinion of the United States

Court of Appeals for the Second Circuit

UNITED STATES COURT OF APPEALS

FoR THE SECOND CIRCUIT

No. 752—August Term 1985

(Argued January 17, 1986 Decided June 30, 1986)

Docket No. 85-5092

IN RE: CENTURY BRASS PRODUCTS, INC.,

Debtor.

CENTURY BrRAss PRopucTs, INC.,

Plaintiff-A ppellee,

—

INTERNATIONAL UNION, UNITED AUTOMOBILE, AEROSPACE and

AGRICULTURAL IMPLEMENT WORKERS OF AMERICA, and

its LocaL 1604,

Defendant-A ppellant.

CREDITORS’ COMMITTEE,

Party-in-Interest.

Before:

KAUFMAN and CARDAMONE, Circuit Judges,

and WyZANSKI, District Judge.*

*Honorable Charles E. Wyzanski, Jr., United States District Judge

for the District of Massachusetts, sitting by designation.

2a

June 30, 1986—Opinion of the United States Court of Appeals

for the Second Circuit

Appeal from a judgment of the United States District Court

for the District of Connecticut (Cabranes, J.) that affirmed

an order of the Bankruptcy Court (Kreckevsky, B.J.) of July

26, 1985 allowing appellee, Century Brass Products, Inc., to

reject a collective bargaining agreement it had with appellant,

International Union, United Automobile, Aerospace and Agri-

cultural Implement Workers of America, and its Local 1604,

in a bankruptcy reorganization pursuant to 11 U.S.C. § 1113

(Supp. II 1984). Appellant union argued that it could not

adequately represent the interest of appellee’s retired employees.

Reversed and remanded.

MICHAEL B. NICHOLSON, Detroit, Michigan

(Jordan Rossen, International Union, UAW,

Detroit, Michigan, of counsel), for

Defendants-A ppellants.

THOMAS M. CLOHERTY, Hartford, Connecticut

(John M. Oleyer, Lissa J. Paris, Murtha,

Cullina, Richter and Pinney, Hartford, Con-

necticut, of counsel), for Plaintiff-A ppellee.

Lewis K. Wise, Hartford, Connecticut (Jerome

E. Caplan, Rogin, Nassau, Caplan, Lassman

& Hirtle, Hartford, Connecticut, of counsel),

Pro Hac Vice for Creditors’ Committee.

CARDAMONE, Circuit Judge:

This appeal deals with one aspect of the existing tension

between the Bankruptcy Code and the National Labor Rela-

tions Act. Today companies in financial distress often look to

the bankruptcy court for protection from deregulation, litiga-

3a

June 30, 1986—Opinion of the United States Court of Appeals

for the Second Circuit

tion, ruinous international competition and other economic

hardships. Under Chapter 11 of the Code a debtor may be

allowed to modify its existing labor agreements and thereby

reduce costs. On the other hand, to permit the unilateral rejec-

tion by an employer of a bargained for agreement flaunts

national labor policy. On February 22, 1984 the Supreme

Court decided NLRB v. Bildisco & Bildisco, 465 U.S. 513

(1984), which held that a debtor in bankruptcy did not com-

mit an unfair labor practice by unilaterally terminating provi-

sions of a collective bargaining agreement. The decision sparked

intense congressional debate regarding the circumstances under

which an existing labor contract could be rejected in Chapter 11

cases.

The institutional tension between labor and bankruptcy law

culminated in the Senate when two bills were introduced: the

first sponsored by Senator Packwood was hostile to the notion

that employers in bankruptcy could unilaterally reject collective

bargaining agreements or make more than minimal modifica-

tions in order to permit reorganization; the second presented by

Senator Thurmond favored a debtor’s power to avoid its agree-

ment, although not unilaterally for 30 days. A House-Senate

Conference Report adopted a compromise approach to the con-

flict by overruling the unilateral power to reject given the debtor

in Bildisco, and by setting forth certain requirements to be met

before rejection of a collective bargaining agreement. The Re-

port was passed over-whelmingly in both Houses and signed

into law by the President on July 10, 1984. See Rosenberg,

Bankruptcy and the Collective Bargaining Agreement—A Brief

Lesson in the Use of the Constitutional System of Checks and

Balances, 58 Am. Bankr. L.J. 293, 308-21 (1984).

Here a union challenges the scope of a bankruptcy court’s

authority under the new law, 11 U.S.C. § 1113 (Supp. II

4a

June 30, 1986—Opinion of the United States Court of Appeals

for the Second Circuit

1984),’ to allow a Chapter 11 debtor to propose modifications

of vested retiree health insurance benefits and—upon the union’s

refusal to bargain on this issue—to reject the collective bar-

gaining agreement. Throughout this litigation the union has

maintained that it is not the retirees’ “authorized representa-

tive,” and that the debtor is required to negotiate any changes

in vested benefits directly with the retirees so as to obtain their

consent. The union contends that because the debtor insisted

1Code § 1113 provides in pertinent part:

(a) The debtor in possession, or the trustee if one has been

appointed under the provisions of this chapter, other than a trustee

in a case covered by subchapter IV of this chapter and by Title 1

of the Railway Labor Act, may assume or reject a collective bar-

gaining agreement only in accordance with the provisions of this

section.

(b)(1) Subsequent to filing a petition and prior to filing an ap-

plication seeking rejection of a collective bargaining agreement, the

debtor in possession or trustee shall—

(A) make a proposal to the authorized representative of the

employees covered by such agreement, based on the most com-

plete and reliable information available at the time of such

proposal, which provides for those necessary modifications in

the employees benefits and protections that are necessary to

permit the reorganization of the debtor and assures that all

creditors, the debtor and all of the affected parties are treated

fairly and equitably; and

(B) provide, subject to subsection (d)(3), the representative

of the employees with such relevant information as is necessary

to evaluate the proposal.

(2) During the period beginning on the date of the making of a

proposal provided for in paragraph (1) and ending on the date of

the hearing provided for in subsection (d)(1), the [debtor] shall

meet, at reasonable times, with the authorized representative to

confer in good faith in attempting to reach mutually satisfactory

modifications of such agreement.

(Footnote continued on following page)

Sa

June 30, 1986—Opinion of the United States Court of Appeals

for the Second Circuit

on bargaining over retiree benefits it violated the good faith

requirement of § 1113. As a result, the union argues that it

had “good cause” to reject the debtor’s proposal.

The bankruptcy and district courts both found that the

debtor’s proposal to the union to eliminate vested retiree bene-

fits did not constitute a sufficient basis to prevent the debtor

from rejecting the labor agreement under § 1113. We agree

that vested retiree insurance benefits are a proper subject of

bargaining. But since a conflict of interest between active em-

(Footnote continued from previous page)

(c) The court shall approve an application for rejection of a

collective bargaining agreement only if the court finds that—

(1) the [debtor] has, prior to the hearing, made a proposal

that fulfills the requirements of subsection (b) (1);

(2) the authorized representative of the employees has refused

to accept such proposal without good cause; and

(3) the balance of the equities clearly favors rejection of such

agreement.

(d)(1) Upon the filing of an application for rejection the court

shall schedule a hearing to be held not later than fourteen days

after the date of the filing of such application. All interested parties

may appear and be heard at such hearing. Adequate notice shall

be provided to such parties at least ten days before the date of such

hearing ....

(2) The court shall rule on such application for rejection within

thirty days after the date of the commencement of the hearing

. . . « If the court does not rule on such application within thirty

days after the date of the commencement of the hearing the

[debtor] may terminate or alter any provisions of the collective

bargaining agreement pending the ruling of the court on such

application.

(f) No provision of this title shall be construed to permit a trustee

to unilaterlly terminate or alter any provisions of a collective

bargaining agreement prior to compliance with the provisions of

this section.

6a

June 30, 1986—Opinion of the United States Court of Appeals

for the Second Circuit

ployees and retirees precludes the union from representing

both, we remand the case to the bankruptcy court so that it can

appoint a representative for the retirees in these negotiations.

I FACTS

Century Brass Products, Inc. (Century, company, or debtor)

came into existence in 1976 when it purchased the major assets

of the Scovill Manufacturing Company located in Waterbury

and New Milford, Connecticut. Included in the sale were a

metals and a general products divisions; the former operated

brass mills and the latter manufactured products for the auto-

motive industry and the United States’ military program. The

purchase price was $30 million, $12 million of which was paid

in cash. The remainder was accounted for by the Company’s

assumption of Scovill’s $18 million vested pension and insur-

ance obligations due its hourly and salaried employees.

Since 1976 Century has recognized the International Union,

United Automobile, Aerospace & Agricultural Implement

Workers of America (UAW) and its Local 1604 (collectively

referred to as the Union) “for the purpose of collective bar-

gaining in respect of wages, rates of pay, hours of employment,

and other conditions of employment . . . as the sole and ex-

clusive representative of all hourly and incentive paid produc-

tion and maintenance employees employed in the metals divi-

sion including the New Milford plant, the General Products

division, and Waterbury services.” Following the acquisition,

Century and the Union entered into a series of collective bar-

gaining agreements.

From the time of acquisition, Century experienced a down-

turn in business precipitated primarily by worldwide events

that had a negative impact on the American brass industry.

Operating losses were incurred for the fiscal years ending in

7a

June 30, 1986—Opinion of the United States Court of Appeals

for the Second Circuit

April 1980-1983. The 1983 loss exceeded $9 million. In fiscal

year 1984 Century realized a minimal profit of $523,704 on

sales of $141 million, with this small profit due in large part

to an insurance settlement. By February 1985 the availability

of cash under its financing arrangement approached zero. To

deal with its urgent need for operating funds, Century devised

pians to reduce operating costs.

Those salaried employees not represented by the Union

agreed to wage and benefit reductions totaling $2.3 million.

Coupled with this, Century’s president met wiih the UAW

on February 25, 1985 to discuss wage and benefit conces-

sions. The company emphasized that unless the UAW agreed

to a $2.5 million reduction, the historically unprofitable

metals division would be closed. Were this to occur, the in-

evitable transfer of overhead expenses to the general products

division would then jeopardize its existence. On March 3, 1985

the UAW members voted to reject any modifications of the

collective bargaining agreement. The following day Century

closed the metals division and laid off 700 employees. Attempts

by a local Congressman and the Mayor of Waterbury to resolve

the conflict were unavailing.

Shortly thereafter, Connecticut Light & Power Company

told Century that its electrical power would be turned off in

15 days unless an overdue payment of $2.5 million was made

together with a one-month deposit. Connecticut Power also

attached Century’s bank accounts. On March 15, 1985 Century

filed a bankruptcy petition under Chapter 11. Scheduled liabil-

ities totaled over $103 million, while assets listed in the peti-

tion amounted to only $71 million. A loss of $7 million was

projected for the fiscal year ending April 30, 1985 with an-

ticipated net sales of $62 million and costs of approximately

$69 million. The bankruptcy court found that Century faced

8a

June 30, 1986—Opinion of the United States Court of Appeals

for the Second Circuit

$40 million of non-modifiable expenses, leaving $22 million

for payment of wages and benefits to all of its non-union salaried

and bargaining unit employees. Labor costs under the existing

collective bargaining agreement amounted to $19,912,000.

Thus, were Century unable to modify its labor agreement, it

would be forced to reduce its non-union salaried employees’

wages from over $9 million to about $2 million.

After filing its Chapter 11 petition Century initiated a series

of meetings with the UAW to discuss the changes essential to

the survival of the general products division and to answer

questions regarding its Chapter 11 petition. During these in-

formal negotiations held on April 3, 9 and 10, 1985, Century

raised the possibility of terminating the pension plan, which

cost it approximately $3 million annually. The UAW rejected

this proposal. By letter dated April 16 Century’s vice president

for corporate services requested a formal negotiating session.

Century and the UAW negotiating committees met again on

April 23.

At this meeting, the company again proposed the following

modifications of the collective bargaining agreement: termina-

tion of the existing pension plan and institution of a new plan,

changes in the medical plan through the addition of a deductible

and/or empleyee contributions, waiver of negotiated changes

in wages for 1985 and 1986, and a new vacation plan. The

UAW responded that the retiree insurance benefits for those

already retired were vested and of lifetime duration.*? As a con-

*Whether retirees’ insurance benefits extend beyond the term of a

collective bargaining agreement is determined by reference to the terms

of the contract and the parties’ intent. See UAW vy. Yard-Man, 716 F.2d

1476, 1479 (6th Cir. 1983), cert. denied, 104 S. Ct. 1002 (1984). The

bankruptcy court made no finding as to the parties’ intent, considering

it unnecessary to resolve this issue. We assume, as that court did, that

the benefits were of lifetime duration.

re

9a

June 30, 1986—Opinion of the United States Court of Appeals

for the Second Circuit

sequence, the Union maintained that it could not negotiate

these benefits through collective bargaining. Rather, if Century

wanted to reduce those benefits, direct negotiation with the

retirees to obtain their consent was necessary. On April 26 the

UAW and Century met with officials of the Pension Benefit

Guaranty Corporation (PBGC) and were advised as to the

benefits the PBGC would guarantee to eligible persons should

the existing plan be terminated.°

The debtor provided the UAW with information on April 29

that detailed the status of the company, its financial data, and

its proposed resolution of various operational problems. The

parties met again on April 30, May 8, and May 13. The Union

reiterated that it could not consider any proposal involving

modification of retirees’ benefits. At the May 8 meeting Cen-

tury presented an economic proposal that was part of an overall

plan to reduce its projected losses from $7 million in the en-

suing year to a profit of $287,000 on sales of $62 on in million.

The proposal called for contract modifications and the termina-

tion of vested retiree insurance benefits. The UAW wanted

*The PBGC was established by Title IV of the Employee Retirement

Income Security Act (ERISA), 29 U.S.C. § 1001. This government

corporation assumes the obligation of guaranteeing certain employee

benefits when a pension plan is terminated. If Century terminates its

plan, the pension benefits for all former Scovill employees now retired

will be guaranteed by the PBGC. The Basic Retirement Plan provides

for $12 per month per year of employee service. At least $11.80 of that

benefit is guaranteed. There is a question whether the remaining $.20 is

guaranteed for persons who retired after 1979. The fact that an eligible

employee has not yet retired or applied for his benefit does not affect

any guarantee that is available. For those employees with 30 years

service who took early retirement, the $230 supplement payable be-

tween ages 60 and 62 is not guaranteed. Only 20 or 30 of the 1,300

retirees receive this supplement.

10a

June 30, 1986—Opinion of the United States Court of Appeals

for the Second Circuit

retiree insurance benefit reductions removed as a topic of nego-

tiation. In response, Century presented a revised opic proposal

at the final pre-hearing negotiating session. Because the pro-

posal stil! called for the complete elimination of cause retiree

insurance benefits for approximately 700 pre-acquisition hourly

retirees and for a significant reduction in the insurance benefits

of 500 post-acquisition retirees, the UAW refused to take Cen-

tury’s offer to its active employee membership for a vote.

On May 17 Century filed the present application in the

bankruptcy court for an order pursuant to § 1113 terminating

its collective bargaining agreement with the UAW. The Union

appeared and objected. From May 31 through July 12 hear-

ings were held on the application. On July 26 the bankruptcy

court (Kreckevsky, B.J.) granted Century’s application. On

November 7 the United States District Court for the District

of Connecticut (Cabranes, J.) affirmed the order rejecting the

labor agreement and this appeal followed.

Il THE UAW’S ARGUMENT

The UAW contends on appeal, as it did below, that the

bankruptcy court erred in finding that the debtor had satisfied

all the prerequisites to the rejection of the collective bargaining

agreement as set forth in § 1113. Specifically, the Union claims

that Century’s proposed modifications to the collective bargain-

ing agreement that reduce the retirees’ vested benefits are in-

consistent with § 1113(c). Such modifications are outside the

scope of § 1113(c), according to the Union, because the

Union is not the “authorized representative” of the retirees,

the proposal is not limited to “modifications in the employees’

benefits and protections” and the Union therefore has “good

cause” to reject such modifications.

lla

June 30, 1986—Opinion of the United States Court of Appeals

for the Second Circuit

As support for this position the UAW relies primarily on

Allied Chemical & Alkali Workers v. Pittsburgh Plate Glass,

404 U.S. 157, 159-60 (1971). In a non-bankruptcy setting,

that case addressed whether an employer’s mid-term unilateral

modification of retired employees’ benefits constituted an un-

fair labor practice. In order to find such a practice, the court

must first find a duty by the employer to bargain with the

union concerning retirees’ benefits. Such an obligation normally

would exist if: (1) the retirees were “employees” as defined in

NLRA §2(3) 29 U.S.C. § 152(3)(4); or (2) these “em-

ployees” were members of the collective bargaining unit for

which the union is the sole authorized bargaining representa-

tive, NLRA § 9(a), 29 U.S.C. § 159(A)(5). See id. at 164-

66. The Court concluded that retirees do not fall within the

statutory definition of employee, id. at 165-71, reasoning that

the statute was concerned with the collective bargaining rights

of workers, not retirees without expectation of further employ-

ment. Those labor disputes that Congress made subject to col-

lective bargaining were between employers and active employees,

a grouping that clearly does not encompass individuals who

have retired from the workforce. Jd. at 166.

Pittsburgh Plate Glass then considered whether retirees, even

though not employees within the .meaning of the collective

bargaining obligations of the Act, could nevertheless be included

within the bargaining unit for which the union was the exclu-

sive bargaining representative pursuant to § 9(A). Jd. at 171.

On that issue it also held that the retirees “were not and could

not be ‘employees’ included in the bargaining unit.” Jd. at 172.

Aside from noting that retired workers did not come under the

concept of employee as embodied in § 9(a), the Court found

lacking sufficient indicia of a mutuality of interest between the

retirees and current workers, thereby precluding placing the

two in the same bargaining unit. Jd. at 172-75. It stated:

12a

June 30, 1986—Opinion of the United States Court of Appeals

for the Second Circuit

Here, even if, as the Board found, active and retired

employees have a common concern in assuring that the

latter’s benefits remain adequate, they plainly do not share

a community of interest broad enough to justify inclusion

of the retirees in the bargaining unit. Pensioners’ interests

extend only to retirement benefits, to the exclusion of

wage rates, hours, working conditions, and all other terms

of active employment. Incorporation of such a limited-

purpose constituency in the bargaining unit would create

the potential for severe internal conflicts that would im-

pair the unit’s ability to function and would disrupt the

processes of collective bargaining. Moreover, the risk can-

not be overlooked that union representatives on occasion

might see fit to bargain for improved wages or other con-

ditions favoring active employees at the expense of retirees’

benefits.

Id. at 173

Finding that the retirees were neither employees nor mem-

bers of the collective bargaining unit did not end the analysis

because issues that affect non-employees may nonetheless be

mandatory subjects of bargaining between a union and em-

ployer when the issues involved “ ‘vitally’ affect the ‘terms and

conditions of employment’ of active employees... .” Jd. at 176

(quoting Board decision below at 177 N.L.R.B. 911, 915

(1969)). The Court stated that “the question is not whether

the third-party concern is antagonistic to or compatible with

the interests of bargaining-unit employees, but whether it vitally

affects the ‘terms and conditions’ of their employment.” Id. at

179. Within this rubric, the issue was “[t]he benefits that active

workers may reap by including retired employees under the

same health insurance contract”, benefits which were found

to be “speculative and insubstaniial at best.” Jd. at 180.

13a

June 30, 1986—Opinion of the United States Court of Appeals

for the Second Circuit

The Supreme Court therefore concluded “that the effect that

the Board asserts bargaining in behalf of pensioners would have

on the negotiation of active employees’ retirement plans is too

speculative a foundation on which to hase an obligation to

bargain.” Jd. at 182. Consequently, it was not a mandatory

subject of bargaining. The Union urges that Pittsburgh Plate

Glass disposes of the present controversy. It points specifically

to the statement that even when a union has affirmatively bar-

gained for retiree benefits, “[u]nder established contract prin-

ciples, vested retirement rights may not be altered without

the pensioner’s consent.” 7d. at 181 n.20.

In addressing the conflict between labor and bankruptcy

law, the bankruptcy court relied on Senator Thurmond’s ob-

servations that § 1113 had to be interpreted in a “workable

manner.” See 130 Cong. Rec. S 8888 (daily ed. June 29,

1984); reprinted in 1984 U.S. Code Cong. & Ad. News 583.

According to the bankruptcy judge this meant that “[iJf a union

seeks to negotiate benefits for its retirees, and bankruptcy en-

sues, the union cannot call up the [Pittsburgh Plate Glass] doc-

trine, deny any responsibility for representation of the retirees,

and, thereby, entirely frustrate § 1113.” Although the district

court also reached this result, it simply found that Pittsburgh

Plate Glass did not support the UAW’s position.

We agree in general with the reasoning of the bankruptcy

and district courts, but for the reasons set forth below reach a

different conclusion as to the representation of retirees in this

case.

III BILDISCO

Prior to the Supreme Court’s decision in Bildisco, 465 U.S.

513, we required a debtor to demonstrate that its efforts at

l4a

June 30, 1986—Opinion of the United States Court of Appeals

for the Second Circuit

reorganization would be thwarted unless it could reject its col-

lective bargaining agreement as an executory contract under

the former Bankruptcy Act, and that the balance of equities

favored rejection. See Shopmen’s Loc. U. No. 455, etc. Vv.

Kevin Steel Prod., Inc., 519 F.2d 698, 707 (2d Cir. 1975)

(court focuses only on balance of equities); see also Brotherhood

of Railway, etc. v. REA Express, Inc., 523 F.2d 164, 167-69

(2d Cir. 1975), cert. denied, 423 U.S. 1017 (1976) (applying

collective bargaining agreement subject to the Railway Labor

Act, 45 U.S.C. § 151 et seq., (1982)).

Bildisco resolved a disagreement among the circuits as to

the proper standard for rejecting a collective bargaining agree-

ment. The traditional business judgment standard governs the

rejection of ordinary executory contracts. See e.g., Group of

Investors v. Milwaukee R. Co., 318 U.S. 523, 550 (1943).

But, collective bargaining agreements, as cornerstones of labor

law, have traditionally been accorded a higher status than the

normal executory contract. Accordingly, the standard for re-

jecting a collective bargaining agreement is more stringent.

Bildisco, 465 U.S. at 523. At the same time, Bildisco rejected

the very strict standard we adopted in REA Express because it

was “fundamentally at odds with the policies of flexibility and

equity built into Chapter 11 of the Bankruptcy Code.” /d. at

525. Specifically, the Court believed that requiring a court to

focus only on whether disallowing rejection would cause the

debtor to go into liquidation would subordinate the multiple,

competing considerations of Chapter 11 reorganization to one

issue Only. Moreover, the evidentiary burden necessary to meet

such a standard would present difficulties which would interfere

with the reorganization process. Id.

Instead an equitable standard was devised which requires that

the bankruptcy court make four findings before the debtor’s peti-

id tae, dill NG iat ie ie a ee

15a

June 30, 1986—Opinion of the United States Court of Appeals

for the Second Circuit

tion for rejection may be granted. These are as follows: (1)

the collective bargaining agreement burdens the estate; (2) the

equities favor rejecting the labor contract; (3) reasonable efforts

to negotiate a voluntary modification have been made and

are not likely to produce a prompt and satisfactory solution;

and (4) allowing rejection would further the policy of Chapter

11 to permit successful rehabilitation of debtors. 7d. at 526-27.

The parties need not bargain to impasse since determining

whether an impasse had occurred would take the bankruptcy

court outside the area of its expertise. Rather, the court should

make a “reasoned finding on the record” why rejection should

be permitted, which would include considering the likelihood

and consequences of liquidation without rejection, the reduced

value of creditors’ claims and subsequent hardships on them,

and the impact on the employees. In that process, a court must

balance the interests of the affected parties and the equities

of the situation as they relate to the success of the reorganiza-

tion.* Jd. at 526.

The first part of Bildisco—which established the proper

standard for judicial determinations of when a collective bar-

gaining agreement can be rejected—was decided unanimously.

‘The Court emphasized the focus of the bankruptcy court under the

equitable standard as it decided whether to grant a rejection petition.

The Bankruptcy Court is a court of equity, and in making this

determination it is in a very real sense balancing the equities, as the

Court of Appeals suggested. Nevertheless, the Bankruptcy Court

must focus on the ultimate goal of Chapter 11 when considering

these equities. The Bankruptcy Code does not authorize freewheel-

ing consideration of every conceivable equity, but rather only how

the equities relate to the success of the reorganization. The Bank-

ruptcy Court’s inquiry is of necessity speculative, and it must have

great latitude to consider any type of evidence relevant to this

issue.

l6a

June 30, 1986—Opinion of the United States Court of Appeals

for the Second Circuit

But in a controversial 5-4 vote, the Supreme Court further held

that a debtor in bankruptcy, prior to obtaining judicial approval

to reject the collective bargaining agreement, may unilaterally

terminate or modify provisions of the agreement without com-

mitting an unfair labor practice under either § 8(a)(5) or

§ 8(d) of the NLRA. 7d. at 534.

IV CONGRESSIONAL RESPONSE

This second part of Bildisco, which held that a debtor could

rescind the labor contract immediately upon filing under Chap-

ter 11, fueled the already noted lobbying effort by organized

labor to have Congress amend the law. In fact, on the same

day Bildisco was decided, Congressman Rodino introduced

H.R. 4908 to “clarify the circumstances under which collective

bargaining agreements may be rejected.” H.R. 4908, 98th Cong.,

2d Sess., 130 Cong. Rec. H 809 (daily ed. February 22, 1984).

These efforts resulted in the passage of the 1984 Amendments

Act of § 1113 of the Bankruptcy Code. That statute now con-

trols the rejection of collective bargaining agreements in Chapter

11 proceedings.

Section 1113 reversed the second part of Bildisco. It created

an expedited form of collective bargaining with several safe-

guards designed to insure that employers did not use Chap-

ter 11 as medicine to rid themselves of corporate indigestion.

Employers may only propose modifications in an existing labor

contract that are necessary to permit an effective reorganiza-

tion of the debtor. Further, the debtor must propose these

modifications to the union before seeking approval to reject its

collective bargaining agreement. 11 U.S.C. § 1113(b)(1)(A).

Only if the expedited bargaining fails does § 1113 permit a

debtor to apply for rejection of the labor agreement. At that

eee

17a

June 30, 1986—Opinion of the United States Court of Appeals

for the Second Circuit

point, a modified version of the unanimously decided first part

of Bildisco applies.

Since § 1113 was passed within five months of Bildisco, it

has only a meager legislative history. See Rosenberg, supra,

58 Am. Bankr. L.J. at 308-21. Congress was unable to agree

on a Committee Report to accompany the law. Thus, only the

comments read into the Congressional Record by various mem-

bers of Congress on June 29, 1984—the date the Bankruptcy

Amendments and Federal Judgeship Act of 1984 were en-

acted—are available. P.L. 98-353, 98 Stat. 333. Our analysis

will include these statements and the few cases that have in-

terpreted the new law.

V DISCUSSION

A. Procedure

Before addressing the substantive standards of § 1113, we

turn first to the procedures required by that provision. The

new law encourages the collective bargaining process as a means

of solving a debtor’s financial problems insofar as they affect

its union employees. Senator Packwood observed that it “places

the primary focus on the private collective-bargaining process

and not in the courts.” 130 Cong. Rec. S 8898 (daily ed. June

29, 1984). Hence, in order to obtain court approval for re-

jecting a labor contract, the debtor—after filing its Chapter 11

petition but before seeking such approval—must follow a two-

step procedure: first, it must make a proposal to the union

accompanied by the kind of relevant and reliable information

needed to evaluate it; second, it must bargain in good faith

with the union. Only after having demonstrated compliance

with the above, without success, may a debtor seek court ap-

proval for rejection. § 1113(b)(1) & (2).

18a

June 30, 1986—Opinion of the United States Court of Appeals

for the Second Circuit

B. Substantive Standards

If the outlined procedure is followed without resolution, the

application for rejection comes before the bankruptcy court

which may, under § 1113(c), approve rejection of the labor

agreement after making three separate findings: (1) the debtor

has made a proposal that satisfies § 1113(b)(1); (2) the em-

ployees’ authorized representative has rejected such proposal

without “good cause”; and (3) “the balance of equities” clearly

favors rejection. Gibson, The New Law on Rejection of Collec-

tive Bargaining Agreements in Chapter 11: An Analysis of

Il U.S.C, § 1113, 58 Am. Bankr. L.J. 325, 335 (1984). We

examine each of these requirements briefly.

The standards set forth in § 1113(b) require that any pro-

posal include those “necessary” modifications in the collective

bargaining agreement “that are necessary to permit reorganiza-

tion of the debtor .. . .” The use of the word “necessary” twice

in § 1113(b)(A) emphasizes the requirement of the debtor’s

good faith in seeking to modify its existing labor contract.

130 Cong. Rec. S 8898 (statement of Senator Packwoo.).

The court must also assure itself that “all creditors, the debior

and all affected parties are treated fairly and equitably.” The

purpose is to spread the burdens of saving the company to every

constituency while ensuring that all sacrifice to a similar degree.

The meaning of the “good cause” language in the require-

ment that “[t]he authorized representative of the employees

has refused to accept such proposal without good cause,” § 1113

(c)(2), is best summarized by Senator Packwood. He ex-

plained that this “serves to prohibit any bad faith conduct by

an employer, while at the same time protecting the employer

from a union’s rejection of the proposal without good cause.”

130 Cong. Rec. S 8898. As Senator Thurmond noted, bargain-

qUEY Nene eer ewe

19a

June 30, 1986—Opinion of the United States Court of Appeals

for the Second Circuit

ing in good faith is not intended to import labor law into the

bankruptcy forum. Rather, “the intent is for these provisions

to be interpreted in a “workable manner”. /d. at 8888, reprinted

in 1984 U.S. Code Cong. & Ad. News 583. Finally, the “bal-

ance of equities” codifies the unanimous holding set forth in

the first part of Bildisco, 465 U.S. at 525-26.

Our construction of the statute follows from its plain language

and the comments of its sponsors in Congress. Moreover, a

number of courts have generally adopted the same approach in

interpreting the statute in cases arising under it. See In re

Kentucky Truck Sales, Inc., 52 B.R. 797 (Bankr. W.D. Ky.

1985); Matter of K & B Mounting, Inc., 50 B.R. 460 (Bankr.

N.D. Ind. 1985); In re Salt Creek Freightways, 47 B.R. 835

(Bankr. D. Wyo. 1985).

C. Application of Standards to This Case

Applying these standards to the instant case, we address the

threshold question of whether Century made a proposal under

§ 1113(b)(1)(A) to the employees’ authorized representative

covered by the agreement. The answer to this question is central

to the resolution of the case before us.

The UAW claims that it is not the authorized representative

of retired union members who, although covered by the agree-

ment, are no longer active workers. Retirees lack the essential

rights of union members. For example, under the Union con-

stitution retirees are members of the union, but they are not

entitled to vote in ratification of collective bargaining agree-

ments. In Pittsburgh Plate Glass, the Court held that the union

had no statutory duty to represent the interests of retirees—as

nonbargaining unit members—when making economic decisions

for those it does represent. The Supreme Court further observed

that vested retirement rights may not, absent the retirees’ con-

20a

June 30, 1986—Opinion of the United States Court of Appeals

for the Second Circuit

sent, unilaterally be altered without giving rise to a § 301 Labor

Management Relations Act suit for breach of contract. 404 U.S.

at 181 n.20.

The bankruptcy court rejected this argument on the ground

that the “unavoidable conflict between federal labor law and

bankruptcy law” was resolved by the Supreme Court in Bildisco,

and thus “[t]he union, having voluntarily negotiated benefits

for its retired members, has the accompanying responsibility, at

least initially, to act in the bankruptcy context as the retirees’

representative under § 1113.” The district court reached the

same result, reasoning that “[t]he Congress that enacted Section

1113 most likely assumed, consistently with Pittsburgh Plate

Glass, that the rights of retired workers ‘vitally affect’ the rights

of current workers whenever their common employer files for

139

protection under Chapter 1i.

We agree with the district court that the rights of retired

workers “vitally affect” the rights of active workers within the

meaning of Pittsburgh Plate Glass when their employer files a

Chapter 11 petition. In a Chapter 11 context a refusal to nego-

tiate a reduction in retiree benefits under § 1113 will “vitally

affect” active employees in two possible ways: first, it could

mean that, as in the case here, they will have to bear a much

larger reduction in wages and benefits in order to permit re-

organization because of the significant cost of the retiree bene-

fits; second, and more importantly, if retiree benefits cannot be

renegotiated, the debtor’s reorganization may well fail, in which

case the active employees would most likely lose their jobs and

benefits.

The district court further correctly observed that the level

of benefits provided to retirees affects “the ability of Century

Brass to remain in business,” an effect far more serious than

21a

June 30, 1986—Opinion of the United States Court of Appeals

for the Second Circuit

any identified by the Supreme Court in Pittsburgh Plate Glass.

Labor law jurisprudence therefore does provide a basis for find-

ing that a change in retirees’ benefits is properly a mandatory

subject of bargaining between Century and the UAW. Pittsburgh

Plate Glass, 404 U.S. at 176-86.

The policies of bankruptcy law also compel this result. It is

true that Pittsburgh Plate Glass held that retirees are not em-

ployees as defined in § 2(3). Yet, if retirees benefits are sub-

jects of bargaining between the union and the employer, and

no modification can occur absent the retirees’ consent, those

retirees must be represented in the negotiations. In order to

promote “the policies of flexibility and equity built into Chapter

11 of the Bankruptcy Code,” Bildisco, 465 U.S. at 525, retirees

should properly be characterized as “employees” for purposes

of applying § 1113. Therefore, they are generally capable of

being represented by the union as their “authorized representa-

tive.”

Concededly, the most “workable” interpretation of § 1113

would logically then require that a union always represent both

current and former employees of the debtor in any negotiation

for collective bargaining modifications made under Chapter 11.

To state such a requirement as an absolute may, as here, pose

a serious question as to whether the Union has a conflict of

interest. It may not always be appropriate for a union to repre-

sent both active and retired workers in modification negotia-

tions. The Supreme Court acknowledged the conflict in Pitts-

burgh Plate Glass, 404 U.S. at 172-73, as discussed earlier,

and though it was in another context, this view is relevant when

construing § 1113. Therefore, we decline to adopt a per se rule

holding that a union is always the appropriate party to repre-

sent the interests of retirees whose former employer is in a

Chapter 11 reorganization proceeding.

22a

June 30, 1986—Opinion of the United States Court of Appeals

for the Second Circuit

When the suitability of representation on account of a con-

flict of interest is raised the bankruptcy court should make a

determination as to whether a conflict actually exists. If a con-

flict is found, a representative for the class of retirees should

be appointed by the bankruptcy judge. Although this departs

somewhat from a literal reading of § 1113, well-established

precedent for an appointment of this sort is found in other

areas of the law. See, e.g., In re Amatex Corp., 755 F.2d 1034,

1043 (3d Cir. 1985) (guardian ad litem appointed for future

unknown asbestos victims of debtor); Adelman on Behalf of

Adelman v. Graves, 747 F.2d 986, 987 (5th Cir. 1984) (dis-

trict court’s dismissal of complaint reversed and case remanded

for court to consider appointment of guardian ad litem on be-

half of incompetent pursuant to Fed. R. Civ. P. 17(c) because

of potential conflict with temporary guardian). Jn re Amatex

Corp. is useful for our purposes because in that case unknown

victims of asbestos poisoning were found to be sufficiently

affected by the Chapter 11 reorganization proceedings of an

asbestos manufacturer to require representation, particularly

where none of the current litigants had interests similar to

those of the potential future claimants. 755 F.2d at 1042-43.

Tne UAW has steadfastly refused throughout the expedited

collective bargaining negotiations and all judicial proceedings

to represent the retirees. Further, the record amply demon-

Strates that a conflict of interest exists between active and re-

tired employees. For example, after Century closed its metals

division, its workforce was reduced to about 900 employees,

650 of whom the Union represented. The general products

division was forced to absorb all of the overhead and many of

the metals division’s personnel costs. The collective bargaining

agreement provided for payment of medical and pension bene-

fits to more than 1,300 retired employees and their families.

The workforce reduction at the metals division did not eliminate

23a

June 30, 1986—Opinion of the United States Court of Appeals

for the Second Circuit

these costs. As a result, each of the 650 remaining active bar-

gaining unit employees must now support medical and pension

benefits for two retired employees and their families. The ac-

tive workers are interested in decreasing this heavy financial

burden. Conversely, dependent on their pension and health

benefits and no longer drawing salaries, retirees want their

benefits reduced as little as possible.

Doubtless, it would be more expedient if a union could always

represent both active and retired workers. Yet to allow that

here would cast doubt on the value of bargained-for rights and

call into question the adequacy of pre-deprivation representa-

tion in the collective bargaining process. The same union can-

not fairly represent two such divergent interests. Here, we con-

clude that a conflict exists as a matter of law. The UAW

therefore may not represent the retired employees. Such must

be the rule if, as Congress aimed, bankruptcy law is to be

reconciled with labor law principles. Our sister circuit in

Wheeling-Pittsburgh Steel Corp. v. United Steel Workers of

America, No. 85-3489, slip op. (3d Cir. May 28, 1986) ap-

parently thought that Congress swung the pendulum back in

favor of labor as a 1eaction to Bildisco. The predicate of this

opinion is rather that the Senate and House Conferees made

the point clear that the road to resolution of the conflict be-

tween labor and bankruptcy principles lies in honest com-

promise.

The debtor as the moving-party seeking rejection of its col-

lective bargaining agreement has the burden of persuasion on

the procedural requirements and substantive standards of § 1113.

Inasmuch as Century has failed to meet its threshold burden

of negotiating with a representative of the company’s retired

employees covered by that agreement, it therefore has failed

to comply with the procedural requirements of § 1113.

iia

24a

June 30, 1986—Opinion of the United States Court of Appeals

for the Second Circuit

VI CONCLUSION

Accordingly, the judgment of the district court is reversed,

and the case remanded with instructions that the bankruptcy

court appoint a representative for the retired employees of the

debtor, and for such further proceedings under § 1113 as are

appropriate.

25a

APPENDIX B

November 7, 1985—Decision and Judgment of the

United States District Court for the District of

Connecticut

UNITED STATES DISTRICT COURT

DisTRICT OF CONNECTICUT

Crvit No. H 85-756 (JAC)

In the Matter of

CENTURY Brass Propucts, INC.

Debtor

APPEARANCES:

MICHAEL B. NICHOLSON

Detroit, Michigan

Counsel for Appellant

United Auto Workers

THOMAS M. CLOHERTY

Hartford, Connecticut

Counsel for Appellee

Century Brass—Debtor in Possession

Lewis K. WISE

Hartford, Connecticut

Counsel for Appellee

Century Brass Creditors’ Committee

APPEAL FROM AN ORDER OF THE U.S.

. BANKRUPTCY COURT

Jose A. CABRANES, District Judge:

This matter is before the court on an appeal from the July

21, 1985, order of the U.S. Bankruptcy Court permitting Cen-

26a

November 7, 1985—Decision and Judgment of the United

States District Court for the District of Connecticut

tury Brass Products, Inc. (“Century Brass” or “the company”)

to reject its collective bargaining agreement with the Interna-

tional Union, United Automobile, Aerospace & Agricultural

Implement Workers of America and its Local 1604 (“UAW”

or “the union”).*

The UAW contends on appeal that Bankruptcy Judge Robert

L. Krechevsky erred in finding that Century Brass had satisfied

all prerequisites to the rejection of a collective bargaining agree-

ment pursuant to 11 U.S.C. § 1113.* Specifically, the UAW

1A district court is to act in its appellate capacity in reviewing a

bankruptcy court decision authorizing the rejection of a collective

bargaining agreement. Consequently, the factual findings made by Judge

Krechevsky below cannot be overturned unless they are found to be

“clearly erroneous.” See Bankruptcy Rule 8013; Jn re Wheeling-Pitts-

burgh Steel Corporation, 120 L.R.R.M. (BNA) 2198 (W.D. Pa. Aug.

28, 1985).

The UAW also renews on appeal its argument that this court erred

in refusing to withdraw its reference of this matter to the Bankruptcy

Court. The court again rejects this argument for the reasons stated in

its oral ruling of June 3, 1985. See Certified Official Transcript of a

Hearing Conducted June 3, 1985 (filed June 6, 1985) at 53-59. Ac-

cordingly, the Bankruptcy Court properly exercised jurisdiction over

this matter.

*Section 1113(c) of the Bankruptcy Code, 11 U.S.C. § 1113(c) pro-

vides that

[t]he court shall approve an application for rejection of a collec-

tive bargaining agreement only if the court finds that:

(1) The trustee [including a debtor in possession] has, prior

to the hearing, made a proposal that fulfills the requirements of

subsection 1113(b)(1);

(Footnote continued on following page)

27a

November 7, 1985—Decision and Judgment of the United

States District Court for the District of Connecticut

argues that Century Brass cannot, consistently with Section

1113(c), propose modifications in the collective bargaining

agreement that would reduce the benefits of retirees. Such modi-

fications are not within the scope of § 1113(c), according to

the UAW, because the union is not the “authorized representa-

tive” of the retirees, the proposal is not limited to “modifica-

tions in the employees’ benefits and protections,” and the union

therefore has “good cause” to reject such modifications.

The UAW relies primarily on Allied Chemical & Alkali

Workers v. Pittsburgh Plate Glass Company, 404 U.S. 157

(1971) (“Pittsburgh Plate Glass’), which held that retirees’

benefits were not a mandatory subject of bargaining in the

circumstances of that non-bankruptcy case. The court finds

that Pittsburgh Plate Glass, assuming arguendo that it has some

(Footnote continued from previous page)

(2) The authorized representative of the employees has re-

fused to accept such proposal without good cause; and

(3) The balance of the equities clearly favors rejection of

such agreement.

Section 1113(b)(1)(A) of the Bankruptcy Code, 11 U.S.C. § 1113

(b)(1)(A), requires that the trustee

make a proposal to the authorized representative of the employees

covered by such agreement, based on the most complete and re-

liable information available at the time of such proposal, which

provides for those necessary .nodifications in the employees’ bene-

fits and protections that are necessary to permit the reorganization

of the debtor and assures that all creditors, the debtor and all of

the affected parties are treated fairly and equitably.

The trustee is obligated by Section 1113(b)(1)(B) to provide the em-

ployees’ representative with “such relevant information as is necessary

to evaluate the proposal.”

28a

November 7, 1985—Decision and Judgment of the United

States District Court for the District of Connecticut

application in a bankruptcy context,* does not support the posi-

tion advanced by the UAW in the instant case.

The Supreme Court indicated in Pittsburgh Plate Glass, supra,

404 U.S. at 179, that one signatory to a collective bargaining

agreement may insist that the other signatory bargain over the

rights of third parties when those rights “vitally affect[ ]” the

terms and conditions of employment of active employees. It is

clear that in this case, unlike Pittsburgh Plate Glass, the level

of benefits provided to retirees “vitally affects” the level of

wages and benefits available to current employees and, indeed,

the ability of Century Brass to remain in business. Accordingly,

the court finds that there is no irreconcilable conflict between

Pittsburgh Plate Glass and the subsequently enacted Section

1113.

It should be noted that there is nothing in Pittsburgh Plate

Glass that would prohibit a union from negotiating either to

increase or to decrease the benefits of retired workers. See

Pittsburgh Plate Glass, supra, 404 U.S. at 181 n. 20. That

decision merely states that neither an employer nor a union is

required to bargain about such matters unless they “vitally

affect” the interests of active employees. The Congress that

enacted Section 1113 most likely assumed, consistently with

Pittsburgh Plate Glass, that the rights of retired workers “vitally

’The appellees argue that Pittsburgh Plate Glass has no application

in a bankruptcy context because the subsequent decision of the Supreme

Court in NLRB vy. Bildisco & Bildisco, US. , 104 S.Ct. 1188

(1984), and the enactment by Congress of Section 1113 evidence a

clear intent that bankruptcy law take precedence over labor law. The

court finds it unnecessary to reach this argument in light of its holding

that there is no conflict between Pittsburgh Plate Glass and Section

1113.

29a

November 7, 1985—Decision and Judgment of the United

States District Court for the District of Connecticut

affect” the rights of current workers whenever their common

employer files for protection under Chapter 11.*

Accordingly, the court finds that the UAW lacked “good

cause” under Section 1113(c)(2) for its failure to negotiate

with Century Brass concerning modification of their collective

bargaining agreement.

The court likewise declines to find that Century Brass failed

to comply with Section 1113(c)(1) because the union was

not the “authorized representative” of the retirees or because

the company’s proposal was not limited to “modifications in

the employees’ benefits and protections.” The appellees note

that the legislative history of Section 1113 includes the state-

ment of Senator Thurmond, one of the Senate-House conferees,

that “the intent is for these provisions to be interpreted in a

workable manner” and not “to import traditional labor law

concepts into a bankruptcy forum or turn the bankruptcy courts

into a version of the National Labor Relations Board.” 130

Cong. Rec. S8888 (daily ed. June 29, 1984). The most work-

able interpretation of Section 1113 is that the employer may

demand that the union bargain over any “benefits and protec-

tions” provided to current and former employees by the collec-

tive bargaining agreement so long as the modification of those

‘The court finds that footnote 20 of Pittsburgh Plate Glass does not

dictate a different result. It is concededly true as a general matter that

“{uJnder established contract principles, vested retirement rights may

not be altered without the pensioner’s consent.” Pittsburgh Plate Glass,

supra, 405 U.S. at 181 n.20. However, a principal purpose of bank-

ruptcy law is to permit debtors to obtain some relief from their con-

tractual obligations. The UAW has cited no persuasive authority for

the proposition that the contractual rights of retirees are not subject

to compromise under the bankruptcy laws as are the rights of other

creditors.

30a

November 7, 1985—Decision and Judgment of the United

States District Court for the District of Connecticut

“benefits and protections” may be necessary to the rehabilita-

tion of the employer. The union necessarily becomes the “au-

thorized representative” of its retirees when it negotiates with

the employer on their behalf and cannot later renounce that

role when the employer seeks to modify the product of their

negotiations under Section 1113.

The court recognizes the difficulties that its holding may

present for unions that wish to avoid conflicts of interest in their

representation of their different constituencies. However, unions

already must attempt to reconcile the conflicting interests of

current and retired employees whenever they engage in collec-

tive bargaining on behalf of both groups outside the bank-

ruptcy context. It is perhaps understandable that unions find

such compromises less distasteful when they are dividing up

gains rather than losses.

II.

The UAW argues that, aside from whether Section 1113

requires a union to negotiate on behalf of its retirees, the de-

cision of the Bankruptcy Court should be reversed for a number

of other reasons.

First, the union asserts that the package of wage and benefit

concessions proposed by Century Brass was “not necessary” to

permit its reorganization. The Bankruptcy Court found in the

instant case that

[a]fter considering the debtor’s essentially nonmodifiable

expenses, approximately $22 million remain for the pay-

ment of wages and benefits for ali union and nonunion

employees. The present annual cost of the union agree-

3la

November 7, 1985—Decision and Judgment of the United

States District Court for the District of Connecticut

ment is $20 million. The debtor’s proposals, when com-

bined with the proposed reductions for nonunion employees,

project annual cost savings of $7,226,000, for a potential

profit of $287,000.

In the Matter of Century Brass Products, Inc., Case No.

2-85-00197 (Bankr. D. Conn. July 26, 1985), slip op. at 14.

The Bankruptcy Court therefore determined that “the debtor’s

proposal contains the modifications necessary to permit the

debtor’s reorganization to proceed.” Jd. at 16.

It should be noted that “the ‘necessary’ standard of Section

1113 does not mean ‘absolutely essential.’” In re Wheeling-

Pittsburgh Steel Corporation, 120 L.R.R.M. (BNA) 2198, 2202

(W.D. Pa. August 28, 1985). Consequently, this court cannot

conclude, based on its review of the record, that this finding

of the Bankruptcy Court was “clearly erroneous.”

Second, the union argues that the proposal does not treat all

affected parties fairly and equitably. Instead, the union argues

that its members will be required to bear a disproportionate

share of the burden of the Century Brass reorganization.

The Bankruptcy Court found, in concluding that Century

Brass had met its burden of proof on this issue, that

[s]ubsequent to the filing of its chapter 11 petition, the

debtor reduced the number of its management officials

from six to two, and the number of salaried employees by

twenty percent. Salaried employees now make a contribu-

tion toward their medical expense premiums. The cred-

itors’ committee asserts that the unsecured creditors have

agreed to “shoulder” expected losses of approximately

$1.4 million... .

32a

November 7, 1985—Decision and Judgment of the United

States District Court for the District of Connecticut

In the Matter of Century Brass Products, Inc., supra, slip op.

at 16. This court cannot conclude, in light of such evidence,

that the Bankruptcy Court erred in finding that the company’s

proposal treated all affected parties fairly and equitably.

Third, the union contends that Century Brass failed to bar-

gain in good faith by filing for rejection of its collective bar-

gaining agreement only four days after it had presented its

proposed contract modifications to the union. However, this

court cannot say that the four-day interval is “inherently un-

reasonable since Section 1113 has no time restraint relative

to when the debtor, following the submission of a proposal,

may file its rejection application.” In re Wheeling-Pittsburgh

Steel Corporation, supra, 120 L.R.R.M. at 2204. There is no

indication in the record that the union was prejudiced in any

manner by what it terms “Century’s . . . rush to the court-

house.” Furthermore, the union has not established any other

bad faith by Century Brass sufficient to reverse the decision of

the Bankruptcy Court.

Finally, the union argues that the balance of the equities in

this case does not clearly favor Century Brass. However, the

Bankruptcy Court accepted the “unequivocal” statements of the

company and the creditors’ committee that Century Brass would

go out of business if the proposed modifications were not in-

stituted. These statements and other evidence led the court to

conclude that the balance of the equities clearly favored Cen-

tury Brass because, “[iJn the event of liquidation, obviously,

all employees, union and nonunion, will lose jobs.” In re Cen-

tury Brass Products, Inc., supra, slip op. at 23.

This court does not intend to trivialize the sacrifices that will

be required of the current and retired employees of Century

Brass if the reorganization is to succeed. However, it does not

33a

November 7, 1985—Decision and Judgment of the United

States District Court for the District of Connecticut

appear that the prospects for the company are so bleak, or

the proposed wage and benefit reductions so onerous, as to tip

the balance of the equities toward liquidation rather than re-

organization. It is, of course, arguable that the company should

consider, as a matter of sound and prudent management, per-

mitting those workers who are sharing in its current hardships

to likewise share in any future recovery.

Conclusion

For the reasons stated above, the decision of the Bank-

ruptcy Court is affirmed. It is so ordered.

Dated at New Haven, Connecticut, this 7th day of November,

1985.

JosE A. CABRANES

United States District Judge

34a

November 7, 1985—Decision and Judgment of the United

States District Court for the District of Connecticut

UNITED STATES DISTRICT COURT

DISTRICT OF CONNECTICUT

>

CiviL No. H-85-756 (JAC)

In the Matter of

CENTURY BRASS PRODUCTS, INC.,

Debtor

JUDGMENT

This cause came on for consideration on appeal from the

July 21, 1985 order of the U. S. Bankruptcy Court before the

Honorable Jose A. Cabranes, United States District Judge,

and on November 7, 1985 a ruling having been filed entitled

“Appeal From An Order of the U. S. Bankruptcy Court” affirm-

ing the decision of the Bankruptcy Court,

It is ORDERED, ADJUDGED and DECREED that the deci-

sion of the U. S. Bankruptcy Court of July 21, 1985, be and

is hereby affirmed.

Dated at New Haven, Connecticut, this 7th day of November,

1985.

KEVIN F. ROWE

Clerk, United States District Court

Deputy in Charge

35a

APPENDIX C

July 26, 1985—Decision and Order of the United

States Bankruptcy Court for the District of Connecticut

UNITED STATES BANKRUPTCY COURT

DISTRICT OF CONNECTICUT

é

Vv

In Proceedings For An Arrangement Under

Chapter 11

No. 2-85-00197

In The Matter Of:

CENTURY BRASS PrRopucTs, INC.,

Debtor

ORDER APPROVING APPLICATION FOR REJECTION

OF COLLECTIVE BARGAINING AGREEMENT

The application of Century Brass Products, Inc., debtor-in-

possession, for approval of the rejection of a collective bargain-

ing agreement dated July 12, 1984, between it and Interna-

tion Union, UAW and Local 1604, UAW, having been

heard, and the court having filed a Memorandum of Decision

containing findings of fact and conclusions of law, in accord-

ance with which it is

ORDERED, ADJUDGED AND DECREED that the applica-

tion for rejection of the collective bargaining agreement re-

ferred to in the application be, and the same hereby is, approved,

and it is

FURTHER ORDERED that claims seeking to assert dam-

ages resulting from such rejection shall be filed on or before

October 14, 1985.

Dated at Hartford, Connecticut, this 26th day of July, 1985.

ROBERT L. KRECHEVSKY

United States Bankruptcy Judge

ee

36a

July 26, 1985—Decision and Order of the United States

Bankruptcy Court for the District of Connecticut

UNITED STATES BANKRUPTCY COURT

DISTRICT OF CONNECTICUT

~<e>

a

In Proceedings For An Arrangement Under

Chapter 11

Case No. 2-85-00197

In The Matter Of:

CENTURY BRASS PRODUCTS, INC.,

Debtor

APPEARANCES:

For the Debtor:

MuRTHA, CULLINA, RICHTER and PINNEY

101 Pearl Street

Hartford, Connecticut 06103

By: THOMAS M. CLOHERTY, Esa.

JOHN M. OLEYER, Esa.

Lissa J. PARis, Esq.

For the Creditors’ Committee:

RoGIN, NASSAU, CAPLAN, LASSMAN & HIRTLE

111 Pearl Street

Hartford, Connecticut 06103

By DAvip HEINLEIN, Esa.

For International Union, UAW and Local 1604

MICHAEL B. NICHOLSON, Esq.

Associate General Counsel, UAW

8000 East Jefferson

Detroit, Michigan 84214

LAW OFFICES OF J. WILLIAM GAGNE, JR.

207 Washington Street

Hartford, Connecticut 06103

By RICHARD SMITH, Esq.

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July 26, 1985—Decision and Order of the United States

Bankruptcy Court for the District of Connecticut

For Pension Benefit Guaranty Corporation:

Davip Power, Esa.

LAWRENCE F. LANDGRAFF, Esa.

General Counsel

Pension Benefit Guaranty Corporation

2020 K Street N.W.

Washington, D. C. 20006

MEMORANDUM OF DECISION ON APPLICATION FOR

REJECTION OF COLLECTIVE BARGAINING

AGREEMENT

KRECHEVSKY, B.J.

I.

The matter before the court is an application by a debtor-

in-possession, Century Brass Products, Inc., (debtor) to reject

a collective bargaining agreement (agreement) with the United

Autoworkers Industrial Union (UAW) and its Local 1604

(collectively, “the union”). The agreement, dated July 12,

1984, entitled “Strike Settlement Agreement and Memorandum

of Agreement Between Century Brass Products, Inc., Inter-

national Union, UAW and Local 1604, UAW”, expires on

August 1, 1987.* The debtor seeks to alter certain provisions,

as hereinafter set forth, for the remaining two years of the

‘This proceeding is a core proceeding within the meaning of 28 U.S.C.

§ 157(b)(2)(A).

*This agreement, entered into after a one-week strike, incorporated

by reference the terms of a prior collective bargaining agreement between

the same parties effective between August 1, 1981 and June 10, 1984.

a

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July 26, 1985—Decision and Order of the United States

Bankruptcy Court for the District of Connecticut

agreement. Sections 1113(b) and (c) of the Bankruptcy Code*®

recently enacted by Congress as part of the Bankruptcy Amend-

ments and Federal Judgeship Act of 1984 contain the bases

8Section 1113 provides as follows:

(a) The debtor in possession . . . may assume or reject a collec-

tive bargaining agreement only in accordance with the provisions

of this section.

(b)(1) Subsequent to filing a petition and prior to filing an ap-

plication seeking rejection of a collective bargaining agreement,

the debtor in possession or trustee (hereafter in this section

“trustee” shall include a debtor in possession), shall—

(A) make a proposal to the authorized representative of the

employees covered by such agreement, based on the most com-

plete and reliable information available at the time of such

proposal, which provides for those necessary modifications in

the employees benefits and protections that are necessary to

permit the reorganization of the debtor and assures that all

creditors, the debtor and all of the affected parties are treated

fairly and equitably; and

(B) provide, subject to subsection (d)(3), the representative

of the employees with such relevant information as is necessary

to evaluate the proposal.

(2) During the period beginning on the date of the making

of a proposal provided for in paragraph (1) and ending on the

date of the hearing provided for in subsection (d)(2), the trustee

shall meet, at reasonable times, with the authorized representative

to confer in good faith in attempting to reach mutually satisfactory

modifications of such agreement.

(c) The court shail approve an application for rejection of a

collective bargaining agreement only if the court finds that—

(1) the trustee has, prior to the hearing, made a proposal that

fulfills the requirements of subsection (b)(1);

(2) the authorized representative of the employees has refused

to accept such proposal without good cause; and

(3) the balance of the equities clearly favors rejection of such

agreement.

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July 26, 1985—Decision and Order of the United States

Bankruptcy Court for the District of Connecticut

on which the court shall either approve or deny the debtor’s

application. See generally, Gibson, The New Law on Rejection

of Collective Bargaining Agreements In Chapter 11: An

Analysis of 11 U.S.C. § 1113, 58 Am. Bankr. L. J., 325-348

(1984) [hereinafter cited as “Gibson”]. Section 1113(d)(2)

mandates that “[t]he court shall rule on such application for

rejection within thirty days after the date of the commencement

of the hearing” unless the debtor and the union jointly agree

to an extension. The hearing on the debtor’s application com-

menced on May 31, 1984, consumed 16 trial days, resulting

in some 2,500 pages of transcript, over 100 exhibits and con-

cluded on July 12, 1985. Each party filed extensive proposed

findings, conclusions of law and memoranda with the court on

July 16, 1985. This ruling. as a result. is out of compliance

with § 1113(d)(2), since the parties, by virtue of their vigor-

ous prosecution of and defense to the application, were unable

to conclude the hearing within the thirty-day period contem-

plated by Congress to be adequate for a hearing and a ruling.

The parties had the statutory option of jointly agreeing to an

extension of time for the court to act, but have chosen not to

do so. Although the debtor and union challenge each other on

the issue of good faith conferring, and urge differing conclu-

sions upon the court based upon the evidence received, in fact.

there is little difference between them as to their versions of

the material events and circumstances which led to this hearing.

Il.

The debtor filed a voluntary petition pursuant to Chapter 11

of the Bankruptcy Code on March 15, 1985, some nine years

after its incorporation as a manufacturer with facilities located

in Waterbury and New Milford, Comnecticut. Although the

ostensibly immediate reason for the bankruptcy filing was a

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July 26, 1985—Decision and Order of the United States

Bankruptcy Court for the District of Connecticut

lawsuit started by the Connecticut Light and Power Company

garnishing the debtor’s bank accounts,‘ the debtor has been in

serious financial difficulty almost from its inception. Its bank-

ruptcy petition scheduled liabilities totaling $103,816,245.00

and assets of $71,025,652.00. The debtor had experienced

operating losses for its fiscal years ending April, 1980, 1981,

1982 and 1983. In fiscal 1984, the debtor showed a profit of

$523,000.00 on sales of $141,000,000.00, due, in large part,

to an insurance settlement received during that year. The debtor

projects a loss of nine million dollars for fiscal 1985.

The debtor originally purchased its major assets in 1976

from The Scovill Manufacturing Company at a price of thirty

million dollars. The purchase price was met by a cash payment

of twelve million dollars’ and by the debtor’s assumption of

Scovill liabilities set at eighteen million dollars for pzyment

due retired Scovill hourly and salaried employees. This assump-

tion of payments has always been carried on the debtor’s

financial statements as a liability calculated at the discounted

present value of the Scovill retiree benefits. The extensive

plant facilities purchased by the debtor can accommodate some

10,000 employees, although the number of the debtor’s em-

ployees has never exceeded 2,000 at any one time. On the date

of the bankruptcy filing, the debtor’s employees totaled around

900, of whom approximately seventy percent were hourly em-

ployees and members of the union, and thirty percent were

salaried employees and not union members.

4On or about March 4, 1985, the Connecticut Light and Power

Company, the electricity supplier for the debtor, advised the debtor

that electrical power would be discontinued in 15 days if a payment

of $2,500,000.00 were not made by the debtor to satisfy overdue pay-

ments and a one-month deposit.

SEight million dollars was raised through subscriptions to the debtor’s

stock.

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July 26, 1985—Decision and Order of the United States

Bankruptcy Court for the District of Connecticut

Concurrently with its purchase of the business, the debtor

agreed to continue the existing collective bargaining agreement

between Scovill and the union. At the time the debtor entered

into its present agreement with the union on July 12, 1984,

and for all prior years, the debtor conducted its business through

two divisions—a metals division and a general products divi-

sion. The metals division operated brass mills, and the general

products division made products for the automotive industry

and for the United States military program. Following the

signing of the agreement, the debtor began to experience a

dramatic downturn in business caused by world-wide events

affecting generally the entire American brass industry. On

February 25, 1985, Lewis Segal (Segal), the debtor’s president,

advised the union that the metals division had been historically

unprofitable and that unless the union agreed to a 2.5 million

dollar wage and benefit reduction, which would be coupled

with a 2.3 million dollar comparable reduction for nonunion

personnel, the debtor would be forced to close the brass mills.

The union members voted, on March 3, 1985, to reject this

request, and on March 4, 1985, the debtor discontinued the

metals division and closed the mills. By this action, some 700

of the debtor’s personnel had their employment terminated.

During this period, the offices of both a United States Congress-

man and the Mayor of Waterbury separately brought the par-

ties to meetings to seek some form of accommodation of their

differences, but to no avail.

On May 17, 1985, two months after the filing of the bank-

ruptcy petition, the debtor filed the present application to reject

its agreement with the union. The union appeared and filed an

objection to the application. The official creditors’ committee

appeared in support of the debtor’s request.

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July 26, 1985—Decision and Order of the United States

Bankruptcy Court for the District of Connecticut

Il.

Pursuant to § 1113(b)(1)(A), a debtor-in-possession in-

stitutes a collective bargaining agreement rejection process by

making a proposal, postpetition, to a union. In the present case,

prior to making a formal proposal, the debtor’s and the union’s

representatives met numerous times, starting on April 3, 1985,

to discuss the effect of the chapter 11 filing on the company

and its employees. The full negotiating committees for both

the union and the debtor usually attended these meetings.

The head negotiator for the union at these meetings, and at

all other meetings hereinafter mentioned, was Michael B.

Nicholson (Nicholson), a UAW attorney. Frank Santaguida

(Santaguida), the debtor’s vice president for corporate services,

was chief negotiator for the debtor. At meetings held on April

3, 1985, April 9, 1985 and April 10, 1985, among other

matters, the parties discussed the possible impact on active and

retired employees if the debtor’s pension plans were terminated.

Santaguida, by letter dated April 16, 1983, requested a formal

negotiating session with the union. The letter advised that the

purpose of the meeting would be modifications to the collec-

tive bargaining agreement. The negotiating teams met on April

23, 1985, and Santaguida outlined the followimg main areas

where the debtor was seeking modifications in the agreement:

termination of the bargaining unit pension plan and the institu-

tion of a defined contribution plan, changes in the medical

plan by including a deductible and/or employees contributions,

waiver of wage increases scheduled in 1985 and 1986, and a

new vacation plan. He represented that based upon company

projections, the debtor could not stay in business very long

with the losses it was incurring. Because both the union and

the debtor were uncertain as to the effect of the termination

of the pension plan, the parties agreed to meet, and did meet,

in Washington, D.C. on April 26, 1985, at the offices of the

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July 26, 1985—Decision and Order of the United States

Bankruptcy Court for the District of Connecticut

Pension Benefit Guaranty Corporation (PBGC). At that time,

officials of the PBGC advised the parties of the extent to which

the PBGC guarantees benefits to covered persons in the event

of plan termination.

On April 29, 1985, the debtor sent to the union and to all

members of the creditors’ committee a lengthy written state-

ment concerning the status of the company and its prospects

for the future. This statement included ten pages of financial

data covering the debtor’s costs of operation, projections as to

future earnings and contemplated savings. On April 30, 1985,

with this information in hand, the union and the debtor nego-

tiating teams met again, and in addition to discussing the

debtor’s proposal, the union president orally presented union

proposals for possible modification of the agreement.® The

parties met on May 8, 1985, when the debtor delivered its

proposal in writing for the first time to the union, and again,

on May 13, 1985, when the debtor presented a slightly modi-

fied proposal to the union which read as follows:

“May 13, 1985

CENTURY BRASS PRODUCTS, INC.

COMPANY PROPOSAL TO MODIFY COLLECTIVE

BARGAINING AGREEMENT

1. Terminate existing retiren.2nt plan.

‘The union’s agreement modifications including the following:

(1) The debtor pay the union president’s salary and benefits; (2)

The debtor pay for several union officials to attend grievance meet-

ings; (3) The debtor settle all pending union grievances; (4) The

debtor grant super seniority for certain union officials; (5) The

debtor permit the union president or vice-president to enter the

debtor’s premises without clearance; (6) The debtor modify agree-

ment provisions permitting the company to establish work rules;

(7) The debtor pay for ten arbitration cases initiated by the

union each year; (8) The debtor offer a health maintenance option.

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July 26, 1985—Decision and Order of the United States

Bankruptcy Court for the District of Connecticut

2. Establish a defined contribution plan to produce a

$12.00 per month times years of future service bene-

fit as a life annuity at age 65. The Company’s con-

tribution rate assumes an 8 percent interest rate. The

plan is to provide for immediate vesting and immediate

employee ownership at death or disability. Other op-

tions (e.g. employee right to withdraw from his ac-

count) to be considered by the parties.

3. Establish a new vacation schedule as follows:

A) All regular employees on the payroll as of June

1, 1985 with 90 days of service, will receive vaca-

tion time off with pay based on their seniority as

of that date.

B) The amount of time off will be as presently set in

our contract.

C) An employee retiring after June 1 will receive

his full entitlement.

D) An employee laid off after June 1 will receive

any unused vacation at the end of the vacation

year,

E) The vacation year shall be from June 1 to June 1.

F) Vacation computation shall be the employee’s June

1, 1985 ASTHE times the number of weeks en-

titlement times 40.

4. Employees laid off with more than one (1) year of

service will be carried on the Medical and Life Insur-

ance programs to the end of the month of layoff.

5. Any increases in medical and life insurance premiums

during this agreement will be borne by the employees.

6. Waive the contract changes effective July 1, 1985.

‘pieces

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July 26, 1985—Decision and Order of the United States

Bankruptcy Court for the District of Connecticut

7. Any retiree who asserts a “lifetime benefit claim” re-

serves the right to assert such claim as a pre-petition

claim.

8. Establish a comprehensive medical plan to replace the

present Medical/Surgical/Prescription Program. The

form of the new plan shall be one of the following

alternatives.

OPTION 1

A) For active employees a Blue Cross $250/$500

deductible plan with 80% /20% co-insurance up

to $3,750, 100% thereafter up to $1,000,000

maximum.

B) Century employees retired after April 1976 and

under age 65 to be given an annual total of $750

(paid monthly) for purposes of purchasing med-

ical coverage.’

C) Century employees retired after April 1976 and

over age 65 to be given an annual total of $420

(paid monthly) to purchase Medicare supplement.

1The Company is willing to redistribute these amounts if the

Union wishes to provide a separate benefit for single and married

coverage. If this option is chosen, the $750 payment would be-

come approximately $580 for single retirees and $1,160 for

married. The $420 payment would become approximately $290

per single retiree and $570 married.”

OPTION 2

A) Active employees and Century employees who re-

tired after April 1976 and are under age 65 re-

ceive the same Blue Cross plan as above.

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July 26, 1985—Decision and Order of the United States

Bankruptcy Court for the District of Connecticut

B) All participants under age 65 (active and retired)

to contribute $10.00 per week for participation

in the Plan.

C) Century employees retired after April 1976 and

over 65 to be given an annual total of $420 to

purchase Medicare supplement (same as Option

1A).

OPTION 3

The Company and the Union agree to establish a new bar-

gaining unit medical insurance plan by June 1, 1985. Such

plan will require a Company contribution of $2,500 per active

participating employee between June 1, 1985 and May 31,

1986. Distribution of the benefits of such plan among active

employees and retirees to be determined by the parties.

On Behalf of the union, Nicholson responded to the May

13th proposal and stated that since the proposal contained re-

ductions in medical insurance benefits for union members who

were retired, the union negotiating committee would not even

take the debtor’s proposal back to their membership for a vote.

This statement by Nicholson concerning any reduction in re-

tired employees’ medical insurance benefits contained in the

agreement’ was essentially consistent with other statements at-

"The agreement provided, inter alia, in Article XVII—Group In-

surance:

4. The Company will provide, at no cost to the employees, the

insurance specified in this paragraph for each employee under

age 65, his spouse under age 65, and eligible dependents under

19 years of age, and each retiree retired under the Century UAW

Income Plan who is under age 65 and his spouse who is under

age 65:

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July 26, 1985—Decision and Order of the United States

Bankruptcy Court for the District of Connecticut

tributed to him at every prior meeting between the union and

the debtor. The debtor contended that the union was the repre-

sentative for all of its members. The parties chose not to nego-

tiate further since the meeting of May 13, 1985 and the filing

of the debtor’s application for authorization to reject the agree-

ment. The court is aware, however, that subsequent to the start

of the hearing, the union membership met and voted affirma-

tively to authorize its leadership to call a strike, and the debtor

has publicly announced that it intends unilateraily to modify

the agreement.

IV.

The few reported court decisions that deal with § 1113 have

adopted the approach of taking each of the apparent conditions

(numbering nine) contained in § 1113 that must be satisfied

before a court may authorize contract rejection, and then

“systematically applying each condition to the facts of the par-

ticular matter before the court. See In re American Provision

Co., 44 Bankr. 907 (Bankr. D. Minn. 1984); Jn re Salt Creek

Freightways, 47 Bankr. 835 (Bankr. D. Wyo. 1985). Since

that approach appears to be reasonable, and since the parties

themselves, in varying degrees, have taken that course in their

post-trial memoranda, I shall do likewise.

A.

THE DEBTOR-IN-POSSESSION MUSf MAKE A _ PRO-

POSAL TO THE AUTHORIZED REPRESENTATIVE OF

THE EMPLOYEES COVERED BY SUCH AGREEMENT

Upon initial consideration, it seemed that resolution of this

portion of § 1113 would give the least trouble. The union, how-

ever, claims that it is not the authorized representative of those

persons who are union members and are covered by the agree-

Tw

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July 26, 1985—Decision and Order of the United States

Bankruptcy Court for the District of Connecticut

ment, but who are now retired. The union cites for this proposi-

tion The National Labor Relations Act 28 U.S.C. § 159(a).

I conclude that, for the purposes of § 1113, the debtor’s pro-

posal was made to the authorized representative of the em-

ployees covered by the agreement, whether those employees

are active or retired. For a fuller discussion, see Section H, infra.

B.

THE PROPOSAL MUST BE BASED UPON THE MOST

COMPLETE AND RELIABLE INFORMATION AVAIL-

ABLE AT THE TIME OF SUCH PROPOSAL ~

The debtor’s financial records are under the supervision of

Joseph Formica, the debtor’s vice president for finance and a

certified public accountant. All such records are subject to an

annual audit conducted by Coopers & Lybrand, Certified Public

Accountants. The debtor’s latest audited financial statement is

for its fiscal year ending April 29, 1984, and Coopers &

Lybrand certified that the financial statement conformed to

generally accepted accounting principles. When the shutdown

of the metais division occurred in March 1985, the debtor had

to generate new financial information to cover the impact of

its continuing fixed costs formerly allocated to the metals divi-

sion and now to be fully borne by the general products division.

This information was not only internally required, but was

necessary for transmission to the debtor’s prime lender. The

General Electric Credit Corporation. The debtor transmitted

this financial information in the form of twelve-month projec-

tions for company operation to the union. The most recent

information, given to the union on May 13, 1985, was intro-

duced into evidence as Exhibit K. It is a forecasted net income

statement for the twelve-month period of May 1985 through

April 1986. Exhibit K projects a loss of almost seven million

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July 26, 1985—Decision and Order of the United States

Bankruptcy Court for the District of Connecticut

dollars, if no change in debtor personnel costs is made. it fore-

casts a net profit of $287,000.00 on sales of $62,000,000.00 ©

if the debtor’s requested agreement modifications are put in

place. During the course of the hearing, the debtor produced

pursuant to the union’s request literally thousands of pages of

documents (according to Nicholson) which the union financial

experts used to test the debtor’s assumptions in Exhibit K. Each

of the witnesses produced by the debtor to testify as to the

debtor’s financial condition underwent a meticulous and thorough

cross-examination on all financial data utilized by the debtor.

Due to the passage of time, some of the Exhibit K monthly

forecasts can be measured against actual results of debtor’s

operation. For example, Exhibit K anticipated net sales of

$4,774,000.00 for May 1985; the debtor’s actual May net sales

were $4,764,849.00. Exhibit K’s projected loss for May was

$498,000.00. The actual loss was $487,845.00.

I conclude that the debtor’s proposal was based upon the

most complete and reliable information available at the time

of such proposal.

Cc.

THE PROPOSED MODIFICATIONS MUST BE THOSE

NECESSARY TO PERMIT THE REORGANIZATION OF

THE DEBTOR

The debtor’s present expenses are approximately 111% of

revenues, which provides the basis for the forecast loss of almost

seven million dollars for the twelve-month period starting May

1, 1985. The debtor lost $487,845.00 in May, and reasonably

anticipates a loss of $930,000.00 in June, 1985. Segal testified

unequivocally that if the union agreement cannot be modified,

the debtor will shortly fail and be forced to liquidate. The

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July 26, 1985—Decision and Order of the United States

Bankruptcy Court for the District of Connecticut

creditors’ committee has asserted that it will not permit any

possible equity available for unsecured creditors to be con-

sumed for much longer. The debtor depends entirely upon in-

terim financing received from The General Electric Credit

Corporation for its cash. The debtor’s proposal for wage and

benefit modification will affect the financial interest of its

hourly and salaried employees in the same manner and reduce

medical and pension plans in the same way. After considering

the debtor’s essentially nonmodifiable expenses, approximately

twenty-two million dollars remain for the payment of wages

and benefits for all union and nonunion employees. The present

annual cost of the union agreement is twenty million dollars.

The debtor’s proposals, when combined with the proposed re-

ductions for nonunion employees, project annual cost savings

of $7,266,000.00°, for a potential profit of $287,000.00.

The union denies that Exhibit K is a reliable forecast of

the debtor’s financial position because the debtor chose to ex-

clude and include inappropriate items of cost and income.

The union contends, for example, that the proceeds of a com-

pleted sale of the idle brass mills, and concomitant reduction

in fixed expenses, should be taken into account; that using as

an expense item the cost of chapter 11 professional services

is improper; and that the present actual insurance costs for

medical benefits should not be utilized, but rather the cost of

‘Termination of Pension Plan Annual Saving

(a) Bargaining unit $2,959,000.00

(b) Salaried $ 790,000.00

Cancel Agreement Wage Increases $ 563,000.00

Reduction of Medical Insurance $2,954,000.00

$7,266,000.00

Of the medical insurance cost savings, Segal testified about 1.9

million comes from union members.

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July 26, 1985—Decision and Order of the United States

Bankruptcy Court for the District of Connecticut

such insurance after the debtor has been reorganized, These

contentions are not sustainable. The instant issue is whether

the debtor will be able to continue in business under the agree-

ment for the period necessary to allow reorganization to take

place. What elements of income and cost a financial statement

of a debtor already reorganized should contain is not the issue

at this stage of the case. As Senator Orrin G. Hatch stated at

the time of the enactment of § 1113:

The conference also discussed at length its intent that this

provision [‘affected parties are treated equitably’] not be-

come an attempt to devise an entire reorganization plan

at a premature stage. We were all aware of the impossi-

bility of even identifying all the creditors and their in-

terests at this early stage of the reorganization effort.

Accordingly, this proposal by the business which offers

what is necessary to save the business and assure fair and

equitable balancing of all the interests should not be con-

strued to require a detailed accounting of how the difficult

burden of reorganization is to be distributed amongst com-

peting parties.

130 Cong. Rec. S 8892 (daily ed. June 29, 1984).

The brass mills have been on the market since the fall of

1984 without any pending offers for them, and it would not

be responsible to count on the proceeds of their sale being

available in the next few critical months. The medical costs in

Exhibit K are exactly those which the debtor pays under its

existing contract with The Confederation Life Insurance Com-

pany. Substantial professional administration expense must be

provided for in a proceeding of this complexity.

The necessity of issuing a prompt ruling in this proceeding

does not allow for a review in this memorandum of the numer-

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July 26, 1985—Decision and Order of the United States

Bankruptcy Court for the District of Connecticut

ous other union objections to the figures contained in Exhibit K,

but all have been considered and found not sufficiently sub-

stantial for the court to reject the credibility of Exhibit K, and

the testimony of the witnesses who addressed its making. I con-

clude that the debtor’s proposal contains the modifications

necessary to permit the debtor’s reorganization to proceed.

D.

THE PROPOSED MODIFICATIONS MUST ASSURE THAT

ALL CREDITORS, THE DEBTOR AND ALL OF THE

AFFECTED PARTIES ARE TREATED FAIRLY AND

EQUITABLY

Subsequent to the filing of its chapter 11 petition, the debtor

reduced the number of its management officials from six to

two, and the number of salaried employees by twenty percent.

Salaried employees now make a contribution toward their med-

ical expense premiums. The creditors’ committee asserts that

the unsecured creditors have agreed to “shoulder” expected

losses of approximately 1.4 million dollars ($430,000.00 in

May and $930,000.00 in June), in the expectation that the

debtor needs some time to form a realistic plan of reorganiza-

tion. The bankruptcy court can enforce the debtor’s representa-

tions that modifications of conditions and terms of employment

of its employees, union and nonunion, will be done proportion-

ately.

The main thrust of the union’s argument against a finding of

fair and equitable treatment is that, in the past, the debtor’s

management has been heavy-handed and insensitive when deal-

ing with employees. The union memorandum states, at page

16-17: “As the record indicates, Century has a history of plac-

ing an inordinate burden upon the backs of its employees when

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July 26, 1985—Decision and Order of the United States

Bankruptcy Court for the District of Connecticut

it comes to financial adjustments necessary to insure the health

of Century.” The union concludes: “The equities do not clearly

favor rejection, and thus, even though some cost restructuring

will be required, Century’s application should be denied.”

During the hearing, counsel for the union examined the

debtor’s officers on past practices concerning granting interest-

free loans to certain officers, related-party transactions, and

excessive officer salaries. The union may or may not have valid

arguments as to past misdeeds by the debtor’s present or former

management. The Bankruptcy Code provides appropriate pro-

cedures through the appointment of an examiner “to conduct

such an investigation of the debtor as is appropriate, including

an investigation of any allegations of fraud, dishonesty, incom-

petence, misconduct, mismanagement, or irregularity in the

management of the affairs of the debtor of or by current or

former management of the debtor.” See § 1104(b) of the Bank-

ruptcy Code. Those matters are not before the court in this

proceeding. If a proposal, presently, is fair and equitable in its

effect on all parties, I do not believe the court is entitled to

find otherwise by considering alleged prior misdeeds of manage-

ment of the type alleged here. I conclude the debtor has met its

burden of proof on this issue.

z.

THE DEBTOR MUST PROVIDE TO THE UNION SUCH

RELEVANT INFORMATION AS IS NECESSARY TO

EVALUATE THE PROPOSAL

The union denies that the debtor has presented such infor-

mation, presumably because the debtor did not retain an in-

vestment banker to do a feasibility studiy of the debtor’s opera-

tions. A union witness stated that the union itself had been

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July 26, 1985—Decision and Order of the United States

Bankruptcy Court for the District of Connecticut

working on a feasibility study in connection with a possible

employee buyout of the debtor based, in part, on information

given by the debtor. In view of the discussion in Section B,

infra, I conclude that the debtor has complied with this pro-

vision.

F,

BETWEEN THE TIME OF THE MAKING OF THE

DEBTOR’S PROPOSAL AND THE TIME OF THE COURT

HEARING ON THE DEBTOR’S APPLICATION FOR AP-

PROVAL OF REJECTION, THE DEBTOR MUST MEET

AT REASONABLE TIMES WITH THE UNION REPRE-

SENTATIVES

The representatives of the debtor and of the union met form-

ally four times to discuss the debtor’s proposals, and they met

on four prior occasions to discuss generally the debtor’s bank-

ruptcy. The debtor never refused to meet at any other time

when the union requested a meeting. The debtor has satisfied

this requirement.

G.

AT THE NEGOTIATING MEETINGS BETWEEN THE

PARTIES, THE DEBTOR MUST CONFER IN GOOD

FAITH IN ATTEMPTING TO REACH MUTUAL SATIS-

FACTORY MODIFICATIONS OF THE COLLECTIVE

BARGAINING AGREEMENT

The debtor has carried its burden of proof that it conferred

in good faith. It had nothing to gain if it did not do so. Segal

testified that the debtor will not be able to survive a strike if

the union so decides. He supported this conclusion by stating

that due to the nature of the debtor’s major customers in the

55a

July 26, 1985—Decision and Order of the United States

Bankruptcy Court for the District of Connecticut

automotive industry, the right of General Electric Credit Cor-

poration to discontinue its financing in the event of a strike,

and the lack of the debtor’s financial resources to continue

without financing, the company would shut down. Although

the court heard extensive testimony on the manner in which

the debtor’s negotiators presented the proposals for agreement

modification, and the union’s responses, it is abundantly clear

that the failure of both sides to reach an accord in the nego-

tiating was the overriding issue, consistently and continuously

raised by the union, that under no circumstances would it agree

to any proposal which contained a modification of the benefits

under the agreement due its retired members.*® This issue has

been central to this entire proceeding, and it is more fully

addressed in the following section.

H.

THE UNION MUST HAVE REFUSED TO ACCEPT THE

PROPOSAL WITHOUT GOOD CAUSE

Of the twenty million dollar cost of the agreement,

$4,380,000.00 arises from retiree insurance costs and

$2,959,000.00 from retiree pension costs. There are approxi-

mately 650 active union employees and 1,600 retirees. If the

retiree costs are excluded from the debtor’s proposals, it is im-

practical to assume that the active employees alone can or

should absorb the necessary wage and benefit modifications to

the agreement. The union negotiators, during the May 8, 1985

meeting, conceded that it might be equitable to seek some

sacrifice from retired employees, along with all other parties.

*Thomas Curtin, who, along with Nicholson, was the main negotiator

for the union stated, at the negotiating session held on May 13, 1985,

that the parties were “spinning their wheels” without resolving this

issue.

56a

July 26, 1985—Decision and Order of the United States

Bankruptcy Court for the District of Connecticut

Under the UAW constitution, retirees are members of the

union but they are not permitted to vote in ratification of col-

lective bargaining agreements. The union takes the following

position. It has the authority and responsibility to enforce, on

behalf of retirees, benefits under collective bargaining agree-

ments, but it is without authority to negotiate any downward

modifications of vested retiree benefits. The retiree medical

benefits are vested for the life of the retirees, and are not payable

only during the term of the agreement.*° The union cannot

negotiate to reduce the benefits due retired employees without

the consent of each individual retiree. Thus, the union concludes,

that it was not good faith conferring for the debtor to include

in its proposal for union negotiation a reduction in benefits

for retirees, and the union had good cause when its representa-

tives refused to accept the proposal and bring it to the member-

ship for a vote. The union further notes that the subject of

retiree benefits is a “permissive” not a “mandatory” bargaining

subject under federal labor law, and “this framework applies

equally in the situation of bankruptcy.” Union Memorandum

at p. 28.

In support of these propositions, the union cites Allied Chem-

ical & Alkali Workers of America v. Pittsburgh Plate Glass

Company, 404 U.S. 157 (1971), and refers the court, in par-

10The union, the debtor and the creditors’ committee have addressed

in their memoranda the question of whether the retirees’ medical bene-

fits, in distinction to the retirees’ pension benefits, are vested for the

life of the agreement or vested for the life of the retiree. I deem it

unnecessary to resolve this question at this time. The pension benefits

are admittedly vested for life, and the debtor’s proposals seek to modify

and terminate such benefits. The medical benefits may or may not be

vested for life, but even assuming that they are vested for life, the

union is the appropriate party under § 1113 to whom the employer

must address any modifications of benefits contained in the agreement

between the employer and the union, as hereinafter set forth.

57a

July 26, 1985—Decision and Order of the United States

Bankruptcy Court for the District of Connecticut

ticular, to the following statement made by the Supreme Court:

Since retirees are not members of the bargaining unit,

the bargaining agent is under no statutory duty to repre-

sent them in negotiations with the employer . . . [Railroad

Trainmen v. Howard, 343 U.S. 768 (1952)] does not

require a union affirmatively to represent nonbargaining

unit members or to take into account their interests in

making bona fide economic decisions in behalf of those

whom it does represent. This does not mean that when

a union bargains for retirees—which nothing in this opinion

precludes if the employer agrees—the retirees are without

protection. Under established contract principles, vested

retirement rights may not be altered without the pensioner’s

consent. . . . The retiree, moreover, would have a federal

remedy under § 301 of the Labor Management Relations

Act for breach of contract if his benefits were unilaterally

changed.

Id. at p. 181, n. 20.

The Supreme Court, in Allied Chemical, decided that for the

purposes of 29 U.S.C. §§ 159(a) and 152(3), retired em-

ployees are not to be considered employees of the union; e.g.,

retiree benefits are not a mandatory bargaining subject. But

that decision did not consider any issue in the context of bank-

ruptcy, generally, nor, obviously, any congressional act not

then in existence. Historically, there has been an unfortunate

but unavoidable conflict between federal labor law and bank-

ruptcy law. See Gibson at 325-327. Under federal labor law

principles, the employer cannot unilaterally change active em-

ployee contractual benefits without committing an unfair labor

practice. Under bankruptcy law, with court approval, an em-

ployer may reject a contract without committing an unfair

labor practice, and the parties to the labor contract who suffer

NN

58a

July 26, 1985—Decision and Order of the United States

Bankruptcy Court for the District of Connecticut

damage file claims against the bankruptcy estate. NLRB v.

Bildisco and Bildisco, 465 U.S. 513, 104 S. Ct. 1188 (1984).

If a union seeks to negotiate benefits for its retirees, and bank-

ruptcy ensues, the union cannot call up the Allied Chemical

doctrine, deny any responsibility for representation of the re-

tireees, and, thereby, entirely frustrate § 1113. The union may

have taken its position in good faith, and, as the creditors’

committee memorandum suggests, be a “principled” position,

but that does not constitute good cause. During the Congres-

sional debate on § 1113, Senator Strom Thurmond remarked

as follows:

The requirement that the union refusal to accept the pro-

posal be ‘without good cause’ is obviously not intended

to import traditional labor law concepts into a bankruptcy

forum or turn the bankruptcy courts into a version of the

National Labor Relations Board. Again, the intent is for

these provisions to be interpreted in a workable manner.

130 Cong. Rec. S 8888 (daily ed. June 29, 1984).

The court, in /n re Salt Creek Freightways, supra, in com-

menting on the “without good cause” provision of § 1113,

stated:

[I]t is the opinion of this court that, in order to approve

an application for rejection, it is not necessary to find that

a Union has rejected the debtor’s proposal in ‘bad faith’

or for some contrary motive. In fact, the Union may often

have a principled reason fer deciding to reject the debtor’s

proposal and which may, when viewed subjectively and

from the standpoint of its self-interest, be a perfectly good

reason. However, the court must review the Union’s re-

jection utilizing an objective standard which narrowly con-

strues the phrase ‘without zood cause’ in light of the main

59a

July 26, 1985—Decision and Order of the United States

Bankruptcy Court for the District of Connecticut

purpose of Chapter 11, namely reorganization of finan-

cially distressed businesses.

Id. at 840.

A collective bargaining agreement entered into by a union

cannot, by virtue of the inclusion of benefits for retired mem-

bers of that union, thereby excuse the union from its responsi-

bilities under § 1113. The obligations of the union must be

construed in light of bankruptcy policies. The union in its

inemorandum, at p. 12, concedes it has the obligation to pre-

sent claims on behalf of its retired employees:

Because retirees are still members of the union, the union

has general authority to represent retiree and employee

interests on a creditors’ committee. The union, as a volun-

tary membership organization (but not as an exclusive

representative under the N.L.R.A.) therefore has authority

to assert retiree interests on issues regarding the general

administration of the estate and protection of the rights

of retirees. Because the UAW is a party to the contract

under which retiree benefits arise, the union may also as-

sert the interest of retirees in defense of that collective

bargaining agreement.

I agree with this statement by the union, except that it does

not go far enough. The union, having voluntarily negotiated

benefits for its retired members, has the accompanying responsi-

bility, at least initially, to act in the bankruptcy context as the

retirees’ representative under § 1113.

I conciude that for the purpose of § 1113, the union has

rejected the debtor’s proposal without good cause.

60a

July 26, 1985—Decision and Order of the United States

Bankruptcy Court for the District of Connecticut

I.

THE BALANCE OF THE EQUITIES MUST CLEARLY

FAVOR REJECTION OF THE COLLECTIVE BARGAIN-

ING AGREEMENT

The creditors’ committee and the debtor unequivocally state

that the debtor will go out of business if the proposed modifica-

tions are not made. In the event of liquidation, obviously, all

employees, union and nonunion, will lose jobs; the employees

who retired since 1976 may lose all their medical insurance

benefits, not just those lowering of benefits proposed by the

debtor. If the contract is rejected, the union remains the ex-

clusive bargaining representative and the debtor will continue

to have a duty to bargain in good faith towards achieving a

new agreement. See In re Salt Creek Freightways, supra, at 842.

The balance of the equities test is a codification of the rule

enunciated by the Supreme Court in Bildisco v. Bildisco. The

Court stated:

The Bankruptcy Court is a court of equity, and in making

thiis determination it is in a very real sense balancing the

equities, as the Court of Appeals suggested. Nevertheless,

the Bankruptcy Court must focus on the ultimate goal of

Chapter 11 when considering these equities. The Bank-

rujptcy Code does not authorize free-wheeling considera-

tion of every conceivable equity, but rather only how the

equities relate to the success of the reorganization. The

Bankruptcy Court’s inquiry is of necessity speculative and

it must have great latitude to consider any type of evi-

dence relevant to this issue.

NLRB vy. Bildisco and Bildisco, supra, 453 U.S. —, 104 S. Ct.

1197.

6la

July 26, 1985—Decision and Order of the United States

Bankruptcy Court for the District of Connecticut

Having given due consideration to the extensive evidence

placed before the court, and having found that the debtor has

established that it has met each of the requirements set out in

§ 1113 for court approval of the application to reject the

collective bargaining agreement, the court concludes that the

balance of the equities clearly favors rejection of the agreement.

The most difficult case is presented when the bankruptcy

court believes that the union is honestly mistaken in its

assessment of the situation. To minimize this likelihood,

the court should make every effort to insure that the union

had an adequate and informed opportunity to make a

detailed assessment. If, in the final analysis, the court is

nevertheless persuaded that the union view is untenable

and that the debtor has correctly maintained that rejec-

tion is essential, the court should permit rejection.

Bordewieck and Countryman, The Rejection of Collective Bar-

gaining Agreements by Chapter 11 Debtors, 57 Am. Bankr.

L. J. 293, 319 (1983).

V.

For the foregoing reasons, the application of Century Brass

Products, Inc. for rejection of the collective bargaining agree-

ment is approved. Pursuant to Bankruptcy Rule 9021, the order

of the court will be set forth on a separate document.

This Memorandum shall constitute Findings of Fact and Con-

clusions of Law mandated by Rule 7052. It is

SO ORDERED

Dated at Hartford, Connecticut, this 26th day of July, 1985.

ROBERT L. KRECHEVSKY

United States Bankruptcy Judge

62a

APPENDIX D

June 30, 1986—Judgment of the United States Court

of Appeals for the Second Circuit

UNITED STATES COURT OF APPEALS

FoR THE SECOND CIRCUIT

~

ees .

At a stated Term of the United States Court of Appeals for

the Second Circuit, held at the United States Courthouse in the

City of New York, on the thirtieth day of June, one thousand

nine hundred and eighty-six.

Present: HON: IRVING R. KAUFMAN,

Hon: RICHARD J. CARDAMONE, Circuit Judges

Hon: CHARLES E. WyZANSKI, JR., District Judge.*

85-5092

IN RE: CENTURY BRASS PRopucTs, INC.,

Debtor.

CENTURY BRASS PRopuCTS, INC.,

Plaintiff-A ppellee,

—V ——

INTERNATIONAL UNION, UNITED AUTOMOBILE, AEROSPACE

and AGRICULTURAL IMPLEMENT WORKERS OF AMERICA, and

its LocaL 1604,

Defendant-A ppellant.

CREDITORS’ COMMITTEE,

Party-in-Interest.

*Honorable Charles E. Wyzanski, Jr., United States District Judge

for the District of Massachusetts, sitting by designation.

63a

June 30, 1986—Judgment of the United States Court of

Appeals for the Second Circuit

Appeal from the United States District Court for the District

of Connecticut

This cause came on to be heard on the transcript of record

from the United States District Court for the District of Con-

necticut, and was argued by counsel.

ON CONSIDERATION WHEREOF, it is now hereby

ordered, adjudged and decreed that the judgment of said Dis-

trict Court be and it hereby is reversed and the action be and

it hereby is remanded to the said district court for further pro-

ceedings in accordance with the opinion of this court with costs

to be taxed against the appellee.

ELAINE B. GOLDSMITH,

Clerk

By: Epwarp J. GUARDARO,

Deputy Clerk

64a

APPENDIX E

August 13, 1986—Order of the United States Court

of Appeals for the Second Circuit Denying Petition

for Rehearing

UNITED STATES COURT OF APPEALS

SECOND CIRCUIT

>

>

At a stated term of the United States Court of Appeals, in

and for the Second Circuit, held at the United States Court-

house, in the City of New York, on the 13th day of August,

one thousand nine hundred and eighty-six.

Docket No. 85-5092

IN RE: CENTURY BRASS PRopDucTS, INC.,

Debtor.

CENTURY BRASS PRODUCTS, INC.,

Plaintiff-A ppellee,

a * pn

INTERNATIONAL UNION, UNITED AUTOMOBILE, AEROSPACE and

AGRICULTURAL IMPLEMENT WORKERS OF AMERICA, and its

Loca 1604,

Defendant-A ppellant.

CREDITORS’ COMMITTEE,

Party-in-Interest.

A petition for rehearing containing a suggestion that the

action be reheard in banc having been filed herein by counsel

for the plaintiff-appellee Century Brass Products, Inc.

65a

August 13, 1986—Order of the United States Court of Appeals

for the Second Circuit Denying Petition for Rehearing

Upon consideration by the panel that heard the appeal, it is

Ordered that said petition for rehearing is DENIED.

It is further noted that the suggestion for rehearing in banc

has been transmitted to the judges of the court in regular active

service and to any other judge that heard the appeal and that

no such judge has requested that a vote be taken thereon.

ELAINE B. GOLDSMITH

Clerk

66a

APPENDIX F

Statute Involved

SECTION 1113 (11 U.S.C. § 1113)

§ 1113. Rejection of collective bargaining agreements.

(a) The debtor in possession, or the trustee if one has been

appointed under the provisions of this chapter, other than a

trustee in a case covered by subchapter IV of this chapter and

by title I of the Railway Labor Act, may assume or reject a

collective bargaining agreement only in accordance with the

provisions of this section.

(b) (1) Subsequent to filing a petition and prior to filing an

application seeking rejection of a collective bargaining agree-

ment, the debtor in possession or trustee (hereinafter in this

section “trustee” shall include a debtor in possession), shall—

(A) make a proposal to the authorized representative

of the employees covered by such agreement, based on

the most complete and reliable information available at

the time of such proposal, which provides for those nec-

essary modifications in the employees benefits and pro-

tections that are necessary to permit the reorganization

of the debtor and assures that all creditors, the debtor

and all of the affected parties are treated fairly and

equitably; and

(B) provide, subject to subsection (d)(3), the repre-

sentative of the employees with such relevant information

as is necessary to evaluate the proposal.

(2) During the period beginning on the date of the mak-

ing of a proposal provided for in paragraph (1) and ending

on the date of the hearing provided for in subsection (d)(1)

the trustee shall meet, at reasonable times, with the authorized

67a

Statute Involved

representative to confer in good faith in attempting to reach

mutually satisfactory modifications of such agreement.

(c) The court shall approve an application for rejection of a

collective bargaining agreement only if the court finds that—

(1) the trustee has, prior to the hearing, made a pro-

posal that fulfills the requirements of subsection (b)(1);

(2) the authorized representative of the employees has

refused to accept such proposal without good cause; and

(3) the balance of the equities clearly favors rejection

of such agreement.

(d)(1) Upon the filing of an application for rejection the

court shall schedule a hearing to be held not later than four-

teen days after the date of the filing of such application. All

interested parties may appear and be heard at such hearing.

Adequate notice shall be provided to such parties at least ten

days before the date of such hearing. The court may extend the

time for the commencement of such hearing for a period not

exceeding seven days where the circumstances of the case, and

the interests of justice require such extension, or for additional

periods of time to which the trustee and representative agree.

(2) The court shall rule on such application for rejection

within thirty days after the date of the commencement of the

hearing. In the interests of justice, the court may extend such

time for ruling for such additional period as the trustee and

the employees’ representative may agree to. If the court does

not rule on such application within thirty days after the date

of the commencement of the hearing, or within such additional

time as the trustee and the employees’ representative may agree

to, the trustee may terminate or alter any provisions of the

collective bargaining agreement pending the ruling of the court

on such application.

68a

Statute Involved

(3) The court may enter such protective orders, consistent

with the need of the authorized representative of the employee

to evaluate the trustee’s proposal and the application for rejec-

tion, as may be necessary to prevent disclosure of information

provided to such representative where such disclosure could

compromise the position of the debtor with respect to its com-

petitors in the industry in which it is engaged.

(e) If during a period when the collective bargaining agree-

ment continues in effect, and if essential to the continuation of

the debtor’s business, or in order to avoid irreparable damage

to the estate, the court, after notice and a hearing, may au-

thorize the trustee to implement interim changes in the terms,

conditions, wages, benefits, or work rules provided by a collec-

tive bargaining agreement. Any hearing under this paragraph

shall be scheduled in accordance with the needs of the trustee.

The implementation of such interim changes shall not render

the application for rejection moot.

(f) No provision of this title shall be construed to permit a

trustee to unilaterally terminate or alter any provisions of a

collective bargaining agreement prior to compliance with the

provisions of this section.