Petition for Writ of Certiorari — Brotherhood of Railway, Airline & Steamship Clerks v. REA Express, Inc.

LIBRAR t Supreme Court, U.

PREME COURT. U. § & IL

) 1975

IN THE a ae

oa aTiGHAEL ODHK, PNAC |

Supreme Court of the Anite States

October TERM, 1975 Supreme Court, U.

eee e

No. 75-3553 \ OCT 10 1975

BroTHERHOOD OF Railway, AIRLINE AND pemamenip. ° §

CLERKS, FREIGHT HANDLERS, EXPRESS AND STATION

Emp.oyses, AFL-CIO, Petitioner,

v. ieee

Rartway Express AGEency, Inc., Debtor,

RatLway Express AGENCY, Inc., Debtor-In-Possession,

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE

SECOND CIRCUIT

-

JAMES L. HicHsaw

Hiausaw & MAHONEY

Suite 506

1015 Eighteenth Street, N.W.

Washington, D. C. 20036

Counsel for Petitioner

Brotherhood of Railway

Of Counsel: and Airline Clerks

Wuu1aM J. Donon, General Counsel

Brotherhood of Railway and Airline Clerks

6300 North River Road

Rosemont, Illinois 60018

October, 1975

Press or Byron S. Apams Printina, Inc., WasHincTon, D. C.

=>,

TABLE OF CONTENTS

Page

i RE TE ee ee PET re Pees pore 2

WUD addccnbciisancahscacdhosecskaandbenas 2

UI IIE Wie cvs s nneu ce cccetaccecaccsca 2

StaTuTory Provistons INVOLVED ...........ceececeees 3

STATEMENT OF THE Case ......... cece cece cccccccccs 4

Reasons FoR GRANTING THE Writ:

1. This case presents an important question con-

cerning the application of the b. ptecy laws

to collective bargaining agreements which should

be decided by this Court .................0000. 11

2. The decision below conflicts with other decisions

applying the Railway Labor Act .............. 14

3. The decision below erroneously impairs a clear

congressional National Labor Policy .......... 17

I eek s eins hcice coke s dkk Oh hc kken decks 19

SE ae vneanekanecieuciascescees cecsked ta la

MS EE eh 86d Sun nnndeeekccuackécksckckaes 15a

TE hittna cn abn hk ee bhbnckkbadids &xkaes 19a

INDEX TO CITATIONS

Cases

Acheson, et al. v. Falstaff Brewing Corp., Case No. 73-

al! 3 § Qi aieS 16, 17

Brotherhood of Locomotive Engineers v. Baltimore &

Ohio R. Co., 372 U.S, 284 (1963) .............0.. 7

Table of Contents Continued

Page

Brotherhood of Railroad Trainmen v. Chicago River &

Indiana R. Co., 353 U.S. 30 at page 39 .......... 5,13

Burke v. Morphy, 109 F.2d 572, 575, footnote 1, cert.

A IED CAL 6S 6c he cau i esas cadekeas eos 15

Chicago & N. W. Ry. Co. v. United Transportation

Union, 402 U.S. S70 (1971)... ccccccnscces

International Brotherhood of Teamsters v. BRAC, 358

ee ee Re Ry SOOO. b sies sennnncnasive cscs 6

In the Matter of REA Express, Inc., f/k/a Railway

Express Agency, Inc., Debtor—In Proceedings For

An Arrangement—No. 75-B-253 ................ 7,8

NLBEB v. Burns International Security Services, Inc.,

A EE PEED s Giwdasecvtccacscaccsecces 16, 17

Order of Railway Conductors v. Pitney, 326 U.S. 561 .. 14

REA Express v. BRAC, et al. (75 Civ. 2879, S.D. N.Y.) 10

REA Express v. Brotherhood of Railway and Airline

Clerks, 358 F.Supp. 760, 764-765, 774, footnote 52

CRAG SA firs Rig BOER): 60's vie vanccensseiccses 5, 6, 8, 12

REA Express, Inc. v. Brotherhood of Railway and

Airline Clerks, 459 F.2d 226 (5th Cir., 1972), cert.

Pe RE PE secu eases sibaacicctabadsc'es

Shopmen’s Local Union No. 455, et al., and NLRB v.

Kevin Steel Products, Inc. (Dockets Nos. 74-1872

Se AEE iin he belek o ia odk Ck cewawaensn + 10

State of California v. Taylor, 353 U.S. 553 at pages

TE ek kn chad a2 pace EVs on cases dae gaes 12

United Steelworkers v. Warrior & Gulf Navigation Co.,

OS Ory er ne ce reer 15

John Wiley & Sons v. Livingston, 376 U.S. 543 (1964)

16, 17

STaTurEs: .

Bankruptcy Act (11 U.S.C., Sections 701, et seq.) . .2, 3, 4, 7,

8, 9, 10, 13,

14, 15, 16, 17, 18, 19

Railway Labor Act (45 U.S.C., Sections 151, et ’seq.)

2, 3, 4, 5, 6, 7, 8, 9, 10, 11,

12, 13, 14, 15, 16, 17, 18, 19

MISCELLANEOUS:

28 U.8.C., Section 1254(1) ..... ccc ccccccccccccccees

IN THE

Supreme Court of the United States

OcToBER TERM, 1975

No.

BroTHERHOOD OF Ramway, AIRLINE AND STEAMSHIP

CLERKS, FREIGHT HANDLERS, EXPRESS AND STATION

Emptoyes, AFL-CIO, Petitioner,

Vv.

Rariway Express Acency, INc., Debtor,

Ratiway Express AGENcy, INo., Debtor-In-Possession,

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE

SECOND CIRCUIT

The petitioner, Brotherhood of Railway, Steamship

and Airline Clerks, Freight Handlers, Express and

Station Employes, AFL-CIO (BRAC), respectfully

prays that a writ of certiorari issue to review the judg-

ment and opinion of the United States Court of Ap-

peals for the Second Circuit entered in this proceeding

on August 27, 1975.

2

OPINIONS BELOW

The opinion of the Court of Appeals, not yet re-

ported, appears in Appendix ‘‘A’’ hereto. The opin-

ion and order of the United States District Court for

the Southern District of New York, on appeal from

an order of a Bankruptcy Judge of that Court, issued

May 19, 1975, not yet reported, appears in Appendix

“*B”’ hereto. The opinion and order of Bankruptcy

Judge John J. Galgay of the District Court, issued

May 2, 1975, also not yet reported, appears in Ap-

pendix ‘‘C”’ hereto.

JURISDICTION

The judgment of the Court of Appeals for the Sec-

ond Circuit was entered on August 27, 1975. This

petition for certiorari was filed within ninety days of

that date. This Court’s jurisdiction is invoked under

28 U.S.C., Secton 1254(1).

QUESTION PRESENTED

Where the Railway Labor Act expressly applies to

any receiver, trustee, or other individual or body, judi-

cial or otherwise, when in possession of the business

of a carrier subject thereto and where such Act spe-

cifically prohibits the changing or termination of a

collective bargaining agreement except in accordance

with prescribed procedures, does Section 313(1) of the

Bankruptcy Act permit a District Court to authorize

a debtor-in-possession of the business of a carrier sub-

ject to the provisions of the Railway Labor Act to

reject a collective bargaining agreement in disregard

of the requirements of the Railway Labor Act?

3

STATUTORY PROVISIONS INVOLVED

This case primarily involves provisions of the Rail-

way Labor Act (45 U.S.C., Sections 151, et seq.) and

of Chapter XI of the Bankruptcy Act (11 U.S.C., Sec-

tions 701, et seq.) as follows:

Section 2, First, of the Railway Labor Act (45

U.S.C., Section 152, First) reads as follows:

“It shall be the duty of all carriers, their offi-

cers, agents, and employees to exert every reason-

able effort to make and maintain agreements con-

cerning rates of pay, rules, and working condi-

tions, and to settle all disputes, whether arising

out of the application of such agreements or other-

wise, in order to avoid any interruption to com-

merce or to the operation of any carrier growing

out of any dispute between the carrier and the

employees thereof.’’

Section 2, Seventh, of the Railway Labor Act (45

U.S.C., Section 152, Seventh) reads as follows:

‘‘No carrier, its officers, or agents shall change

the rates of pay, rules, or working conditions of

its employees, as a class, as embodied in agree-

ments except in the manner prescribed in such

agreements or in section 156 of this title.”

Section 1, First, of the Railway Labor Act (45

U.S.C., Section 151, First), reads in pertinent part as

follows:

“‘The term ‘carrier’ includes any express com-

pany, * * * subject to the Interstate Commerce

Act, * * * and any receiver, trustee, or other indi-

vidual or body, judicial or otherwise, when in the

possession of the business of any such ‘carrier’

4

Section 313(1) of Chapter XI of the Bankruptcy

Act (11 U.S.C., Section 713(1)) reads in pertinent

part as follows:

‘“‘Upon the filing of a petition, the court may

* & &

**(1) permit the rejection of executory contracts

of the debtor, upon notice to the parties to such

contracts and to such other parties in interest as

the court may designate ;’’.

STATEMENT OF THE CASE

Petitioner BRAC is a labor organization primarily

representing employees in the craft or class of office,

clerical, station, and stores positions of carriers (rail-

roads, airlines, a * express companies) subject to the

Railway Labor Act (45 U.S.C., Sections 151, et seq.).

The respondent REA Express, Inc., Debtor, is a car-

rier subject to the provisions of the Railway Labor

Act engaged in both surface and air transportation of

property. REA Express, Inc. v. Brotherhood of Rail-

way and Airline Clerks, 459 F.2d 226 (5th Cir., 1972),

cert. den. 409 U.S. 892.

BRAC has represented most of the employees of the

respondent and its predecessor companies since March

1, 1922. This representation originally included all of

the employees of respondent except drivers in certain

cities and mechanic employees engaged in the mainte-

nance and servicing of vehicles. When the original

Railway Labor Act was enacted on May 20, 1926 (44

Stat. 577), the representation of employees of re-

spondent was made subject to the provisions of that

statute. On December 10, 1965, the National Mediation

Board certified BRAC to represent all of the employees

of the respondent with the exception of the mechanic

5

employees represented by the International Associa-

tion of Machinists.:| In May 1975, such representa-

tion involved approximately 6,300 employees of the

respondent holding bulletined jobs with respondent.

REA Express v. Brotherhood of Railway and Airline

Clerks, 358 F.Supp. 760 (D.C. 8.D. N ~X» 1973).°

Since 1922, BRAC and REA Express (or its prede-

cessor companies) have been parties to a basic collec-

tive bargaining agreement, revised from time to time,

governing the employment of the bulk of the carrier’s

employees. This agreement has, among other things,

in addition to providing for compensation and hours

of work, established seniority rights for such employ-

ees controlling their assignment, promotion and work

location; provided supplemental unemployment com-

pensation; provided benefits in case of consolidations

and transfers; provided grievance procedures to cor-

rect against illegal or arbitrary management actions.

These procedures for the resolution of employee griev-

ances are required by Section 3 of the Railway Labor

Act (45 U.S.C., Section 153), which this Court has

described establishes a system of “compulsory arbi-

tration”. Brotherhood of Railroad Trainmen v. Chi-

cago River and Indiana R. Co., 353 U.S. 30 at page 39.

+The history of the BRAC representation of employees of re-

spondent is set forth by the National Mediation Board in Volume

4, pages 253, et seq., of the Board’s “‘Determinations of Craft or

Class of the National Mediation Board’’, involving the Board’s

decision ‘‘In the Matter of Representation of Clerical, Office, Sta-

tion and Storehouse Employes, Employees of REA Express, Inc.’’,

? Appendix ‘‘C’’, page 20a. Paragraph 13(b) of the affidavit

of Mr. Tom Kole, President of respondent, submitted to the Bank-

ruptcy Court in support of respondent’s bankruptcy petition,

states that the carrier employs in excess of 12,000 persons not

counting almost 10,000 employees who are currently on furlough.

6

The agreement also contained a non-discrimination

clause to protect minority groups and female employ-

ees. International Brotherhood of Teamsters Vv.

Brotherhood of Railway and Airline Clerks, 358 F.2d

540 (D.C. Cir., 1966); REA Express v. Brotherhood

of Railway and Airline Clerks, 358 F.Supp. 760 (D.C.

S.D. N.Y., 1973)... The Bankruptcy Court found that

the employee rights set forth therein were of substan-

tial value, the loss of which could not be compensated

for by money. The BRAC agreement and all of its

revisions since 1922 were executed pursuant to the pro-

visions of the Railway Labor Act, Section 2, First, of

which, quoted above, page 3, requires BRAC and

respondent to exert every reasonable effort to make

and maintain agreements covering rates of pay, rules,

and working conditions of employees in order to avoid

interruptions to interstate commerce. Such require-

ment is designed to create an enforceable legal obliga-

tion. Chicago & N. W. Ry. Co. v. United Transpor-

tation Union, 402 U.S. 570 (1971).

Section 2, Seventh, of the Railway Labor Act (45

U.S.C., Section 152, Seventh), quoted above, page 3,

also specifically controls the revision and termination

of collective bargaining agreements subject thereto by

prohibiting a carrier from undertaking such action not

in the prescribed manner. Article XIII of the last revi-

sion of the BRAC-REA agreement dated May 3, 1973,

provided that it should remain in effect until Decem-

ber 31, 1975, and thereafter until changed or modified

in accordance with the provisions of the Railway Labor

8 The basic collective bargaining agreement between BRAC and

REA in effect on February 18, 1975, was last revised on May 3,

1973, and appears as REA Exhibit No. 8-B in the proceedings

before Bankruptcy Judge Galgay.

7

Act. Section 6 of the statute (45 U.S.C., Section 156)

provides for written notice of an intended change in

agreements, conferences between the parties with re-

spect thereto, and mediation by the National Mediation

Board where necessary.‘ Neither a carrier nor em-

ployees may invoke self-help to revise or terminate

the provisions of a collective bargaining agreement

until they have exhausted these mandatory provisions

of the statute. Brotherhood of Locomotive En gineers

v. Baltimore & Ohio R. Co., 372 U.S. 284 (1963).

Congress made these compulsory requirements ap-

plicable to railroads, express companies, sleeping car

companies, and in 1936 extended such requirements

to airlines. They now cover agreements of surface

carriers and 903 airline agreements.’ Congress has

also specifically made these statutory requirements ap-

plicable to any receiver, trustee, or other individual or

body, judicial or otherwise, when in the possession of

the business of a Railway Labor Act carrier.

On February 18, 1975, the respondent and its affili-

ated companies filed petitions with the District Court,

pursuant to the provisions of Chapter XI, Section 322,

of the Bankruptcy Act (11 U.S.C., Sections 722, et

seq.). The petition of respondent is identified as

“In the Matter of REA Express, Inc., f/k/a Railway

Express Agency, Inc., Debtor—In Proceedings for an

Arrangement—No. 75-B-253”. This petition prayed

* Section 10 (45 U.S.C., Section 160) provides for the appoint-

ment of Presidential Emergency Boards to hear and report on

the contract disputes which threaten substantially to interrupt

interstate commerce to a degree such as to deprive any section of

the country of essential transportation service.

*40th Annual Report of National Mediation Board, Table 8,

page 77.

8

that proceedings be had upon the petition in accord-

ance with the provisions of Chapter XI. On the same

date, on motion of the attorneys for respondent, the

Bankruptcy Court entered an order providing that the

Debtor be authorized to operate its business and man-

age its property pursuant to Section 343 of the Bank-

ruptey Act (11 U.S.C., Section 743) and Rule 11-23 of

the Rules of Bankruptcy Procedure until further or-

der of the Court (Appendix ‘‘C’’, page 20a).

On March 24, 1975, the Debtor REA filed a motion

with the Bankruptcy Court, pursuant to Section 313(1)

of the Bankruptcy Act (11 U.S.C., Section 713(1)),

for an order permitting the rejection of the collective

bargaining agreements with BRAC as well as with the

International Association of Machinists and Aerospace

Workers. Those agreements were the only contracts

which REA Express sought to reject. Indeed, the rec-

ord shows that it made weekly payments of substantial

amounts to the airlines under its air express contract.

REA thus attempted to impose upon the employees all

of the burdens flowing out of its bankruptcy. This is

completely consistent with the carrier’s view asserted

in prior judicial proceedings involving the revision of

the BRAC contract that the stockholders would put no

more capital into the enterprise and that it was up to

the employees to supply the needed capital. REA

Express v. Brotherhood of Railway and Airline Clerks,

358 F.Supp. 760 at pages 764-765 (D.C. S.D. N.Y.,

1973).

The unions opposed the motion on the grounds,

among others, that the Railway Labor Act prohib-

ited the rejection of the REA collective bargain-

ing agreements. After hearing, the Bankruptcy Judge

denied REA’s motion on the grounds that ‘‘this

9

is not the kind of rejection or disaffirmance intended

by Congress nor would it be within the over-all scheme

of Chapter XI” (Appendix “C”’, page 292). The

Bankruptcy Judge found that the disaffirmance of the

agreements would place the employees at a substantial

disadvantage and would destroy valuable contract

rights which could not be compensated for in a claim

against the respondent, although such claims were the

normal procedure in the case of rejected contracts.

The Court concluded that the balance of the equities

favored the employees. REA appealed this decision

to the District Court, which reversed the Bankruptey

Judge and granted the REA motion. In so doing, the

District Court found that the collective bargaining

agreements were subject to rejection under Section

213(1) of the Bankruptey Act. The District Court

also concluded that the provisions of the Railway Labor

Act did not preclude rejection because they applied

only during the life of the agreement and ceased to

have any application if the agreement had come to an

end either by expiration of the term thereof or by

rejection in bankruptcy (Avpendix “B” hereto).

The District Court took the position that the collec-

tive bargaining agreement stood disaffirmed from the

moment of its order. BRAC therefore sought a stay

of such order from the Court of Appeals pending reso-

lution of the timely filed appeal from the District

Court’s order. Such a stay was denied on May 27,

1975. On August 27, 1975, the Court of Appeals issued

its opinion affirming the District Court order. It did

so on the grounds (1) that collective bargaining agree-

ments are executory contracts within the meaning of

Section 313(1) of Chapter XI of the Bankruptcy Act,

and (2) that the provisions of the Railway Labor Act

10

for the termination or revision of the collective bar-

gaining agreements were not applicable because the

Debtor was a different entity from the pre-bankrupt

company and is therefore not a ‘‘party”’ to the agree-

ment. The opinion of the Court of Appeals relied on

its decision of July 24, 1975, in Shopmen’s Local Union

No. 455, et al., and NLRB v. Kevin Steel Products, Inc.

(Dockets Nos. 74-1872 and 74-2154), in which it re-

versed a decision Of the District Court holding that

Section 313(1) of Chapter XI of the Bankruptcy Act

did not authorize a rejection of a collective bargaining

agreement executed pursuant to the provisions of the

National Labor Relations Act.®

The Court of Appeals decision also remanded the

case to the District Court for further consideration and

findings on the question of whether the BRAC collec-

tive bargaining agreements are onerous and burden-

some to warrant an authorization to the Debtor-in-

possession to reject them.

Since May 27, 1975, the respondent has operated

on the premise that its employees have no contract

rights and that it can do what it pleases with respect

to rates of pay, rules, and working conditions. This

situation has resulted in a substantial amount of em-

ployee unrest which on June 16, 1975, erupted into

wildcat strikes resulting in an action by REA Express

against BRAC and numerous individuals for injunc-

tive and monetary relief. REA Express v. BRAC, et

al. (75 Civ. 2879, 8.D. N.Y.).”

* BRAC was informed that the NLRB is considering filing a peti-

tion for certiorari to review the Kevin Steel Products case.

™The carrier subsequently withdrew its damage claims against

BRAC.

11

REASONS FOR GRANTING THE WRIT

1. This Case Presents an Important Question Concerning the

Application of the Bankruptcy Laws to Collective Bar-

— Agreements Which Should Be Decided by This

The decision below enables the Debtor-in-Possession

to unilaterally destroy a collective bargaining agree-

ment which, as revised from time to time in accord-

ance with the provisions of the Railway Labor Act,

has been in effect for more than 50 years, and to

jeopardize the rights of the employees provided for

therein. The Bankruptcy Court found that the pen-

sion rights, welfare rights, seniority rights, and other

rights of the employees under the collective bargaining

agreement could not be valued for damage claims or

other claims against the Debtor as is normal in the

rejection of an executory contract in a bankruptey

proceeding. Moreover, although the Court of Appeals

found that the Debtor was required under the provi-

sions of the Railway Labor Act to negotiate a new

agreement, the Bankruptcy Court found that any such

requirement is worthless because the rejection of the

existing collective bargaining agreement would destroy

the economic balance of power between the parties so

that the ‘“‘employees would be at a substantial disad-

vantage and be in the position where REA could dic-

tate the terms of any new agreement”. The applica-

tion of the bankruptcy statute to Railway Labor Act

collective bargaining agreements is a question which

Should be determined by this Court because of the

clear adverse impact of the decision below upon the

national labor policy established by the Congress of

maintaining such agreements for the purpose of avoid-

ing interruptions to interstate commerce or to the op-

erations of carriers engaged therein.

12

This purpose is set forth in Section la of the Rail-

way Labor Act (45 U.S.C., Section 151a), which enu-

merates the statutory proposition, and again in Section

2, First, quoted above, page 3, which imposes a duty

upon employees and carriers to make and maintain

collective bargaining agreements for such purpose.

Such purpose was recognized and enunciated by this

Court in its decision in State of California v. Taylor,

353 U.S. 553 at pages 565 and 566. In that case, this

Court declared that the Railway Labor Act, like the

Safety Appliance Act, is ‘‘all-embracing in scope and

national in its purpose’. The provisions of Section 1,

First, of the Railway Labor Act, quoted above, page

3, which impose all of the duties and requirements of

the statute upon receivers, trustees, or ‘‘other individ-

ual or body, judicial or otherwise’’ (emphasis sup-

plied), when in the possession of the business of a

Railway Labor Act carrier, is in furtherance of this

congressional policy. Such provisions were not

adopted merely for the purpose of employers, em-

ployees, or stockholders,* whether Debtors-in-Posses-

sion in bankruptcy or not, but in furtherance of the

specific congressional purposes of aiding in the avoid-

ing of interruptions to interstate commerce through

stability of labor relations on the property of carriers.

That purpose is defeated by the decision below. In

the case of the particular Debtor, the decision below

has already contributed immeasurably to hostility be-

tween labor and management and given substantial

impetus to labor unrest. Such an impact upon poli-

8 REA Express, the Debtor here involved, is not a publicly owned

corporation but is owned and controlled by a handful of stock-

holders. REA Express v. Brotherhood of Railway and Airline

Clerks, 358 F. Supp. 760 at page 774, footnote 52 (D.C. S.D. N.Y.,

1973).

13

cies established by Congress warrants the considera-

tion of the legal issues involved by this Court.

In addition, the decision below destroys the manda-

tory provisions of Section 3 of the Railway Labor Act

for the purpose of resolving employee grievances

which this Court has described as a unique system of

“‘ecompulsory arbitration’’. Brotherhoood of Railroad

Trainmen v. Chicago River and Indiana R. Co., 353

U.S. 30. It has long been recognized that the prompt

and equitable resolution of employee grievances is one

of the foundations of industrial peace. It is incon-

ceivable that any carrier, including a Debtor-in-Pos-

session under Chapter XI of the Bankruptcy Act, is

free to reject these compulsory statutory requirements.

If such a result is to be brought about by judicial ac-

tion, then it should be decided by the highest Court in

the land so that the public policy problems involved

can then be considered by the Congress.

The conflict between the decision below and the na-

tional labor policy established by Congress in the Rail-

way Labor Act is further emphasized by the provi-

sions of Section 77(n) of the Bankruptcy Act which

Specifically prohibit Federal District Courts from

changing or terminating the provisions of collective

bargaining agreements of railroads in reorganization

under Section 77. The presence of this prohibition

in Section 77(n) constitutes a clear declaration by

Congress that the basic purposes of the Railway Labor

Act of achieving industrial peace through the making

and maintaining of collective bargaining agreements

is more important to the public interest than the inter-

est of a carrier in bankruptcy or its stockholders or

other creditors. Nor would it make any sense to con-

14

tend that Congress did not intend its prohibition to

apply to bankruptcy proceedings other than those un-

der Section 77 because of the absence of such language

from the other bankruptcy sections. The legislative

history of the Railway Labor Act shows that the lan-

guage involved was placed in the Bankruptcy Act and

the Emergency Railroad Transportation Act of 1933 at

a time when Section 2, Seventh, was not a part of the

Railway Labor Act and that such language is almost

identical to the subsequent provisions of Section 2,

Seventh. When Section 2, Seventh, is read in con-

junction with the provisions of Section 2, First, it

clearly precludes a Debtor-in-Possession or a judge

or trustee from changing terms and working conditions

of employees except as provided in Section 2, Seventh.

Thus, the prohibitions of the Railway Labor Act after

its 1934 amendments are as specific as are the prohibi-

tions contained in Section 77(n). The decision below

was forced to recognize this fact and to arrive at its

final conclusions through a so-called process of accom-

modation of the Railway Labor Act and the Chapter

XI Bankruptcy Act. However, in making this accom-

modation, the decision below ignores the basic purposes

of the Railway Labor Act and places all the emphasis

on the bankrupty statute. If this had been the intent

of Congress, Section 2, First, would not appear in the

Railway Labor Act along with Section 2, Seventh.

2. The Decision Below Conflicts With Other Decisions

Applying the Railway Labor Act

In Order of Railway Conductors v. Pitney, 326 U.S.

561, this Court cited the provisions of the Railway

Labor Act here involved and held that the District

Court’s jurisdiction to act with respect to Railway

Labor Act ‘“‘minor’’ disputes thereunder was limited

B gee

15

by such provisions to the same role as that of the bank-

rupt carrier involved. Although this decision was

briefed and cited to both the District Court and the

Court of Appeals, it was not mentioned in the deci-

sions below. The decision below also conflicts with the

decision of this Court in United Steelworkers v. War-

rior & Gulf Navigation Co., 363 U.S. 574, 578-579. In

that case, this Court recognized that collective bargain-

ing agreements are not ordinary contracts but a code

of rules which call into being a new common law. The

Bankruptcy Court recognized that collective bargain-

ing agreements were different from the ordinary con-

tracts and concluded that rejection of collective bar-

gaining agreements was not intended by Congress in

adopting the provisions of Section 313(1) and was

not within the over-all scheme of Chapter XI. The

decision below treats a collective bargaining agreement

as any other type of contract. Indeed, the present

decision is in conflict with an earlier decision of the

same Court of Appeals in Burke v. Morphy, 109 F.2d

572, cert. den. 310 U.S. 635. In that case, the Court

held invalid under the cited provisions of the Railway

Labor Act the action of a District Court in directing a

receiver of a bankrupt railroad to withhold 15% of its

employees’ wages. In so doing, the Court (page 575,

footnote 1) stated that the Railway Labor Act in its ex-

press inclusion of receivers in the definition of a “‘car-

rier’ represented a definite turning away from the

earlier and much criticized attempts of receivership

judges to force operations of financially distressed rail-

roads through the use of contempt proceedings against

employees. In its present decision, the Court of Ap-

peals seeks to distinguish its earlier contrary decision

by stating that it construes the earlier decision as

dealing with a situation in which the receiver had ‘‘im-

16

plicity’? adopted the Debtor’s labor agreement. How-

ever, there is nothing in that decision to so indicate and,

in fact, the decision rested on the cited provisions of the

Railway Labor Act and not upon any implicit adoption

of the agreement. In the present case REA defended its

unilateral action in cutting the employees’ wages before

the Bankruptey Judge not on the grounds that it had

rejected the agreement but on the grounds that the em-

ployee claims simply gave rise to grievances to be proc-

essed under Section 3 of the Railway Labor Act and the

Bankruptcy Judge accepted this contention (Appendix

“<Q”? hereto, page 29a). This inconsistency in the ap-

proach of the Court of Appeals creates another reason

why the important issues involved should be reviewed

by this Court.

Moreover, the recent decision of the Ninth Cireuit in

Acheson, et al. v. Falstaff Brewing Corp., Case No. 73-

2855, decided August 25, 1975, is contrary to the holding

of the Court below in the present case that the collective

bargaining agreement is terminated by the petition in

bankruptcy because the Debtor-in-Possession is a new

juridical entity. In that case, there was involved the

issue of whether a new employer was bound to recog-

nize rights of employees of a bankrupt company whose

plant had been purchased by the new employer. The

Ninth Circuit held that in the case before it the new

employer was not so required but only because there

was not a high degree of enterprise continuity which

would justify imposing obligations on the new em-

ployer. In this connection, the Ninth Circuit cited the

decisions in NLRB v. Burns International Security

Services, Inc., 406 U.S. 272 (1972), and John Wiley &

Sons v. Livingston, 376 U.S. 543 (1964). In the pres-

ent case, there is complete enterprise continuity. The

17

same business enterprise is being operated by the same

management. It is implicit in the Ninth Circuit de-

cision that if Falstaff had continued the operations of

the bankrupt employer, that successor company would

have been subject to the requirements of the decisions

in the Burns and John Wiley d: Sons cases.

8. The Decision Below Erroneously Impairs a Clear Congres-

sional National Labor Policy

The Court of Appeals found that the Debtor REA

was a “‘new juridical entity’’ and was thus not a party

to and was not bound by the terms of a collective bar-

gaining agreement which it had entered into. It was

thus free to accept or reject the collective bargaining

agreement. The Court compared the situation to that

of a successor employer subject to the National Labor

Relations Act. There is, of course, no comparison

between a successor employer where the business has

been transferred through purchase and the same com-

pany simply operating under a bankruptcy order pro-

tecting it from suits by creditors pending efforts to re-

organize the business. It is simply the same people

doing business at the same old stand. Acheson, et al. v.

Falstaff Brewing Corp. decision above, page 16.

Nor does this theory solve the conflict with the spe-

cific provisions of the Railway Labor Act created by

the application of 313(1) of Chapter XI of the Bank-

ruptey Act to collective bargaining agreements. The

Debtor cannot unilaterally reject the contract. He

must apply to the Bankruptcy Court for permission to

do so and the prohibitions of the statute clearly apply

to that Court. When the language of Sections 2, First,

and 2, Seventh, is put together, the statute clearly

reads that no Court or trustee can change collective

bargaining agreements except as provided for in Sec-

18

tion 2, Seventh. Also, the Debtor is clearly a ‘‘carrier”’

within the requirements of the Railway Labor Act and

as such is bound to ‘‘maintain agreements’’ and change

them only in accordance with the provisions of the

statute. In fact, the Court of Appeals in its decision

holds that a trustee or Debtor-in-Possession being a

carrier is expressly obligated by Section 2, First, of

the Railway Labor Act to ‘‘exert every reasonable ef-

fort to make and maintain agreements concerning

rates of pay, rules, and working conditions * * *.”’

(Emphasis added.) The Court interprets this as im-

posing an obligation on the Debtor only to make an

agreement and not maintain an existing agreement,

but this interpretation is clearly contrary to the statu-

tory language. Moreover, requiring a Debtor to nego-

tiate a new agreement within a framework where such

Debtor has already rejected the old agreement does not

meet the statutory requirements. As the Bankruptcy

Court found, the rejection of existing collective bar-

gaining agreements destroys the economic balance of

power between the parties when the contracts were

entered into so that the employees would be at a sub-

stantial disadvantage and be in the position where REA

could dictate the terms of any new agreement (Ap-

pendix ‘‘C’’ hereto, page 27a).

The Court of Appeals recognizes what it character-

izes as the apparent conflict in the language and pur-

pose of the Railway Labor Act and the Bankruptcy

Act and sets out to engage in a judicial accommodation

of the two statutes. The accommodation is to conclude

that Congress intended that Section 313(1) of the

Bankruptcy Act should be applicable to collective bar-

gaining agreements since otherwise the end result could

well be to preclude financial reorganization of a car-

—_—

19

rier and thus lead to its demise, and that the unions

and employees had shown no reasons why they should,

under the circumstances, be permitted to insist upon

strict compliance with their agreements. At the same

time, the Court is forced by the decisions of this Court

to agree that the Debtor is otherwise bound by the Rail-

way Labor Act and must negotiate a new agreement.

The conclusion that the Oourt’s interpretation of Sec-

tion 313(1) is necessary to prevent the demise of a

bankrupt carrier is inconsistent with the clear neces-

sity for holding the Debtor subject to the other pro-

visions of the Railway Labor Act, including Section 2,

First, because if an impasse is reached in such nego-

tiations the unions are free to strike.

CONCLUSION

For these reasons, a writ of certiorari should issue

to review the judgment and opinion of the Second

Circuit.

Respectfully submitted,

JAMEs L, HiaHsaw

Hicusaw & MAHONEY

Suite 506

1015 Eighteenth Street, N.W.

Washington, D. C. 20036

Counsel for Petitioner

Brotherhood of Railway

and Airline Clerks

Of Counsel:

Wiu1aM J. Donton, General Counsel

Brotherhood of Railway and Airline Clerks

6300 North River Road

Rosemont, Illinois 60018

October, 1975

APPENDIX

la

APPENDIX ”A”

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Nos. 1220, 1221—September Term, 1974.

(Argued June 27, 1975 Decided August 27, 1975.)

Docket Nos. 75-5007, 75-5008

BrorHEerHoop oF Rartway, AIRLINE AND STeaMsHIP CLERKS,

Freicut Hanpiers, Express anpD Station EMPLOYEs,

AFL-CIO,

Appellant,

against

REA Exprsss, Inc., Debtor,

REA Express, Inc., Debtor-in-Possession,

Appellee.

INTERNATIONAL ASSOCIATION OF MACHINISTS

anp Arrospace Workers, AF'L-CIO,

Appellant,

against

REA Express, Inc., Debtor,

REA Express, Inc., Debtor-in-Possession,

Appellee.

Before:

Cuark, Associate Justice,*

MansrieLp and Mu.uican, Circuit Judges.

Appeal by the Brotherhood of Railway, Airline and

Steamship Clerks and the International Association of

Machinists and Aerospace Workers from a decision of the

United States District Court for the Southern District of

* Supreme Court of the United States, retired, sitting by desig-

nation.

2a

New York, Inzer B. Wyatt, Judge, permitting REA, as

debtor-in-possession of REA Express, Inc., to disaffirm

executory collective bargaining agreements with the two

unions under §313(1) of the Bankruptcy Act, 11 U.S.C.

§ 713(1).

Remanded.

SHetpon Enceinarp, Esq., New York, N.Y.

(Robert L. Jauvtis, Esq., Viadeck, Elias,

Viadeck & Lewis, P.C., New York, N.Y.,

of Counsel), for Appellant International

Association of Machinists and Aerospace

Workers, AFL-CIO.

Davi J. Fuieminc, Esq., New York, N.Y.

(Reilly, Fleming & Reilly, New York, N.Y.,

James L. Highsaw, Esq., Highsaw &

Mahoney, Washington, D.C., William J.

Donlon, Esq., Rosemont, Illinois, of coun-

sel), for Appellant Brotherhood of Raiil-

way and Airline Clerks.

Artuur S. Ouick, Esq., New York, N.Y. (John

C. Russell, Esq., Jane S. Solomon, Esq.,

Anderson Russell Kill & Olick, P.C., New

York, N.Y., of counsel), for Appellee REA

Express, Inc.

MansFIELp, Circuit Judge:

Once again we are called upon, within a matter of weeks,

to determine whether a trustee or debtor-in-possession in

bankruptcy under the Bankruptcy Act may, under § 313(1)

of that Act, 11 U.S.C. § 713(1), disaffirm executory collec-

tive bargaining agreements entered into by the dekics

In Shopmen’s Local Union No. 455, et al., and NLRB v.

Kevin Steel Products, Inc., —— F.2d ——, Dkt., Nos. 74-

1872, 74-2154 (2d Cir., July 24, 1975), we held that § 313(1)

permits the bankruptcy court to authorize a trustee or

3a

debtor-in-possession to reject a collective bargaining

agreement governed by the National Labor Relations Act

upon a showing that it is onerous and burdensome and that

the equities tip decidedly in favor of termination. In

the present case we similarly hold that executory col-

lective bargaining agreements subject to the provisions

of the Railway Labor Act, 45 U.S.C. § 151 et seg., may

be rejected but remand the case for further determina-

tion as to whether the agreements in issue are sufficiently

onerous and burdensome to warrant grant of such author-

ity pursuant to § 313(1).

REA Express, Ine. [‘‘REA”?’ herein], a corporation en-

gaged in the surface and air transport of express ship-

ments, is a party to separate collective bargaining agree-

ments with two unions (the ‘‘unions”’ herein), the Brother-

hood of Railway, Airline and Steamship Clerks (‘“BRAC”’

herein) and the International Association of Machinists

and Aerospace Workers (‘‘IAM’”? herein). These agree-

ments govern the wages and working conditions of approx-

imately 6,600 persons of some 7,600 currently employed by

REA. The agreements expire on December 31, 1975, and

June 1, 1976, respectively. In addition to matters usually

covered in a collective bargaining agreement, the agree-

ments substantially affect REA’s right to close or consoli-

date facilities and transfer or lay off workers. In partic-

ular, both agreements require payment of supplementary

unemployment benefits to workers who are laid off and the

BRAC agreement provides that workers who elect to follow

their work in a consolidation are entitled to free trans-

portation and other allowances for the dislocation. Under

the BRAC agreement, transfers and consolidations can be

effected by REA only upon notice to the union and with

substantial delays. BRAC, furthermore, may demand arbi-

tration of a dispute over the effects of a consolidation.

On February 18, 1975, REA and several affiliated com-

panies filed petitions under Chapter XT, § 322 of the Bank-

4a

ruptey Act, 11 U.S.C. § 205 et seq., and by court order REA

was continued as debtor-in-possession of its property. On

March 24 REA moved pursuant to § 313(1) of the Bank-

ruptey Act, 11 U.S.C. § 713(1),* and Rule 11-53 of the Rules

of Bankruptcy Procedure, for an order permitting rejec-

tion of the BRAC and IAM agreements as onerous and

burdensome. In support of this motion, REA presented

evidence, accepted by the Bankruptcy Judge, that it had

incurred substantia] liabilities as debtor-in-possession, had

an outstanding payroll liability of over four million dol-

lars, and was unable to meet its expenses on a current basis

REA claimed that it could not continue to operate without

significantly reducing costs, and had developed a plan for

drastic curtailment and consolidation of its operations.

In sum, the collective bargaining agreements are claimed to

be onerous and burdensome because (1) their supplemental

unemployment and consolidation provisions would com-

pletely forestall the debtor, which is insolvent, from adopt-

ing and implementing a reorganization plan that would

enable it to survive, and (2) the debtor cannot meet the

full wage scales provided for in the agreements.

While fully accepting the evidence of REA’s economic

plight, Bankruptcy Judge Galgay nonetheless denied au-

thority to disaffirm the two contracts, holding that ‘‘this

is not the kind of rejection or disaffirmance intended by

Congress nor would it be within the overall scheme of

Chapter XI.’’ REA immediately appealed this decision to

the Southern District of New York, see 11 U.S.C. § 67(c),

1Section 313(1) of the Bankruptey Act, 11 U.S.C. §713(1),

provides :

‘*Upon the filing of a petition, the court may, in addition to

the jurisdiction, powers, and duties conferred and imposed

upon it by this chapter—

**(1) permit the rejection of executory contracts of the debtor,

upon notice to the parties to such contracs and to such other

parties in interest as the court may designate.’’

Dik nt BUNS AR ARIAT A cae al abi 8h lin 82 Rite Pe a SB ae

2 ADR Ch Slob! y,

5a

where Judge Wyatt reversed. Judge Wyatt found on his

review of the record that the agreements were onerous

and burdensome ‘‘in any ordinary sense’’ and concluded

that there was no limitation on the type of executory con-

tract which a trustee or debtor-in-possession was permitted

by § 313(1) to reject.

Discussion

In Kevin Steel we faced the question of whether a

debtor-in-possession under Chapter XI of the Bankruptcy

Act, which is subject to the National Labor Relations Act,

may be authorized by the district court to reject an ex-

ecutory collective bargaining agreement. We concluded

that such authority is to be found in the broad language

and purpose of § 313(1) which provides, without qualifica-

tion, that the court may ‘‘permit the rejection of executory

contracts of the debtor’’. Although § 8(d) of the National

Labor Relations Act, 29 U.S.C. § 158(d), to which Kevin

Steel Products, Inc. was subject, prohibits any party toa

collective bargaining agreement from terminating or mod-

ifying it unilaterally prior to exhausting certain negotiat-

ing procedures, we reasoned that, unless and until the

agreement is assumed by the debtor-in-possession, the lat-

ter, being a different entity from the pre-bankrupt com-

pany, is not a ‘‘party’’ to the agreement and hence not

subject to § 8(d)’s termination restrictions with respect

to it.

Thus the tension between the Bankruptey Act’s policy

in favor of giving the debtor a new start and the Labor

Act’s policy of encouraging enforcement of collective bar-

gaining agreements was resolved by holding that, absent a

clear Congressional mandate to the contrary, such as that

specified in §77(n) of the Bankruptey Act, 11 U.S.C.

§ 205(n), with respect to ‘‘railroad employees’’, the en-

forcement of a collective bargaining agreement must yield

to the bankruptcy court’s power to relieve the debtor’s

6a

successor in bankruptcy immediately of onerous and bur-

densome executory contracts. At the same time we de-

cided that a bankruptcy court must scrutinize with partic-

ular care applications for rejection of collective bargaining

agreements, carefully balancing the equities on both sides

in light of the Labor Act’s policy. The case was accord-

ingly remanded to the district court for a more thorough

discretionary reconsideration of the advisability of au-

thorizing rejection of Kevin Steel’s collective bargaining

agreement.

The central question before us in this case is whether a

collective bargaining agreement subject to the Railway

Labor Act (‘‘RLA’’), 45 U.S.C. §§ 151 et seq., is governed

by the same principles. The unions maintain that the

RLA’s plain language prohibits any such rejection of a

collective bargaining agreement made by the debtor-car-

rier except in the manner prescribed by that Act. We

disagree. The face of the RLA, it is true, appears at first

glance to lend some support to the union’s position. A

‘‘earrier’’ is defined by § 1 of the RLA to include ‘‘any re-

ceiver, trustee, or other individual or body, judicial or

otherwise, when in the possession of the business of any

such ‘carrier’....’’ 45 U.S.C. § 151.2 Section 2 of the RLA

then provides that:

‘‘No carrier, its officers, or agents shall change the

rates of pay, rules, or working conditions of its em-

ployees, as a class, as embodied in agreements except

in the manner prescribed in such agreements or in

section 156 of this title.’’ 45 U.S.C. § 152, Seventh.

In addition, § 6 of the RLA, 45 U.S.C. § 156, (referred to

above in § 2 as ‘‘section 156 of this title’’) obligates a car-

2The National Labor Relations Act likewise applies to ‘‘legal

representatives, trustees in bankruptcy, or receivers’’, 29 U.S.C.

§ 152, see Durand v. NLRB, 296 F.Supp. 1049, 1055 (W.D. Ark.

1969).

yt) eee

pom —

7a

rier to utilize a protracted procedure for resolution of

differences with respect to any proposed changes in a col-

lective bargaining agreement, pending completion of which

the carrier must maintain the status quo, even if the agree-

ment has expired. See Manning v. American Airlines, Inc.,

221 F.Supp. 301 (S.D.N.Y. 1963), aff’d., 329 F.2d 32 (2d

Cir.), cert. denied, 379 U.S. 817 (1964). Section 6 requires

that at least thirty days’ written notice be given of any

intended changes in rates of pay, rules or working condi-

tions and it requires conferences to be held with respect

to the changes. The RLA further provides for submission

of disputes to the National Mediation Board, see 45 U.S.C.

§ 155, if requested by either party or if the Board proffers

its services. Section 6 also specifies that, pending the ex-

haustion of these procedures, ‘‘rates of pay, rules, or work-

ing conditions shall not be altered by the carrier. . . .”’

The purpose of these provisions of the RLA, like that of

§8(d) of the National Labor Relations Act, 29 U.S.C.

§ 158(d), which was before us in Kevin Steel, is to avoid

disruptions of commerce by forcing the parties to exhaust

collective bargaining procedures and, where the RLA ap-

plies, to encourage use of arbitration and mediation before

engaging in self-help, strikes or other forms of unilateral

action. The unions contend that a trustee or debtor-in-

possession, being a ‘‘carrier’’, is obligated to use the fore-

going statutory notice, conference and mediation proce-

dures before it may make any change in its collective bar-

gaining agreements.

In response to this argument, REA points to the broad

language of § 313(1) of the Bankruptcy Act, which with-

out qualification authorizes the Bankruptcy Court to ‘‘per-

mit the rejection of executory contracts of the debtor,’’

11 U.S.C. §713(1). This section enables the court to im-

plement the policy of Chapter XI, which is to permit the

debtor-in-possession to deal with the debtor’s property in a

way that will enable it to survive, by relieving it of exec-

8a

utory contracts that would threaten or prevent its sur-

vival As Judge Wyatt observed, the Bankruptcy Act

places no restriction on the type of executory contract

which may be rejected under this section. See 8 Collier

on Bankruptcy 199 (14th ed.). Furthermore, as we noted

in Kevin Steel, Congress, by enacting §77(n) of the Bank-

ruptey Act, 11 U.S.C. § 205(n), which excepts ‘‘railroad

employees’’ from the operation of § 313(1), demonstrated

that it ‘‘knew how to remove labor agreements from the

scope of a general’power to reject executory contracts,”’

Slip. Op. 5113.5 Both courts having held below, and the

unions having conceded, that the collective bargaining

agreements are ‘‘executory’’ as to their unexpired terms,

REA argues that the a td! Act’s plain language

must prevail.

Faced with this apparent conflict in the language and

purposes of the RLA and the Bankruptcy Act we must

give effect to both statutes to the extent that they are not

mutually repugnant. In the present case we are persuaded,

as we were in Kevin Steel, that this can be accomplished

by holding that where, after careful weighing of all of the

factors and equities involved, including the interests sought

to be protected by the RLA, a district court concludes that

an onerous and burdensome executory collective bargain-

ing agreement will thwart efforts to save a failing carrier

in bankruptcy from collapse, the court may under § 313(1)

authorize rejection or disaffirmance of the agreement. To

hold that the RLA precludes rejection under such circum-

stances would ultimately be to defeat the purpose of the

RLA itself, which is to avoid disruption of commerce by

insuring that the carrier will continue operations pending

Section 77(n) of the Bankruptcy Act, 11 U.S.C. § 205(n),

provides :

‘*No judge or trustee acting under this [Act] shall change the

wages or working conditions of railroad employees except in

the manner prescribed in [the Railway Labor Act] ...’’

|

Na Naa le OPE TIIRD Aas 9 ns ti

9a

resolution of labor disputes, since the end result could

well be to preclude financial reorganization of the carrier

and thus lead to its demise. There then would simply be no

operations left to disrupt. If REA’s collective bargaining

agreements with the unions, for instance, are too onerous

and burdensome to permit it to survive, no purpose would

be served by obligating it to resort to RLA negotiating

procedures, which assume that the carrier involved is

viable and will be able to meet its payroll and contractual

obligations to employees and other creditors.*

When a carrier goes into bankruptcy and does not have

the funds to continue operations indefinitely at existing

levels and labor costs pending exhaustion of the protracted

statutory RLA procedures for modification of its collec-

tive bargaining agreements, § 313(1) must govern. The

practical effect of § 313(1) is to force all creditors doing

business under executory contracts with the debtor in eco-

nomic distress to renegotiate their mutual rights, relin-

quishing some in order to maintain the enterprise as a

going concern so that they can at least realize a substantial

percentage of what they would otherwise receive. It is a

rare case when the financial distress of an enterprise in

bankruptcy does not work a hardship on its creditors, in-

cluding those who render services to the debtor. No reason

is shown why the unions and the employees represented,

by them should under such circumstances be permitted to

insist upon strict compliance with their executory agree-

ments with REA.

When REA, after going into Chapter XI proceedings,

was authorized to operate as the debtor-in-possession, it

* Although Congress in §77(n) of the Bankruptcy Act pre-

cluded federal courts from changing the terms and conditions of

employment of railroad workers, it made this exception because

railroads, being entitled to the unique benefits of railroad reorgani-

zation under §77 of the Bankruptcy Act, did not come under

Chapter X of that Act. See H.R. Rep. No. 1897, 72d Cong., 2d

Sess. (1933) ; Sen. Rep. No. 92-1158, 92d Cong., 2d Sess. (1972).

10a

acted as a new juridical entity. It was not a party to and

was not bound by the terms of the collective bargaining

agreement entered into by REA as debtor, see Shopmen’s

Local Union No. 455, et al., and NLRB v. Kevin Steel

Products, Inc., supra, slip. op. at 5112; In re Capital Ser-

vice, Inc., 136 F.Supp. 430, 434 (S.D.Cal. 1955), unless and

until the contract should be assumed, either expressly or

conforming to its terms without disaffirmance, see In re

Public Ledger, Inc., 161 F.2d 762, 767 (3d Cir. 1947).°

Although a debtor-in-possession such as REA is not bound

to assume the collective bargaining agreements of its pre-

decessor, it as a new employer is obligated to bargain col-

lectively with the representative of the employees hired by

it. The Supreme Court so held with respect to a new em-

ployer in a case governed by the NLRA, NLRB v. Burns

Security Services, 406 U.S. 272, 277-81 (1972), and the

result under the RLA is the same. Moreover, a trustee or

debtor-in-possession, being a ‘‘carrier,’’ is expressly obli-

gated by § 2 of the RLA to ‘‘exert every reasonable effort

to make and maintain agreements concerning rates of pay,

rules, and working conditions. ..’’ 45 U.S.C. § 152. This

language has been interpreted to impose a positive duty on

the carrier to bargain with the employees’ certified repre-

sentative. Chicago & N.W. Ry. Co. v. United Transporta-

tion Union, 402 U.S. 570, 574-76 (1971) ; Virginia Ry. Co. v.

System Federation No. 40, 300 U.S. 515 (1937).

The question crucial to the present case is whether, in

addition to being required to bargain with the unions as

representatives of the employees, the debtor-in-possession,

as a new employer, is also obligated to maintain the status

quo, i.e., adhere to the terms and conditions of employ-

ment presently in effect pending negotiations with the

5 We construe Burke v. Murphy, 109 F.2d 572 (2d Cir.), cert.

denied, 310 U.S. 635 (1940), relied upon by appellants, as also

dealing with a situation in which the receiver had implicitly adopt-

ed the debtor’s labor agreements.

lla

unions for collective bargaining agreements. In NLRB

v. Burns Security Services, supra, the Supreme Court

considered the applicability of such a requirement to a

‘ successor-employer subject to the NLRA which was obli-

; gated to bargain with a union. In that case Burns had

replaced another employer in providing security services

at a certain plant. Burns hired for itself 27 of the plant

guards employed by the predecessor, and brought in 15

of its own employees. The Court held that, although Burns

had a duty to bargain with the representative of the em-

ployees of the predecessor, it had no obligation to refrain

from changing the terms of employment before such bar-

gaining occurred. As a new employer, Burns was held

to have a right unilaterally to set the initial terms on

which it would hire employees. Moreover, the Court

stated, to bind a successor-employer to the terms of its

predecessor’s collective bargaining contract could, where

the terms of the agreement were onerous, discourage or

inhibit a potential successor from taking over a failing

business. Thus a new employer, it was emphasized, must

be granted certain prerogatives at the outset in making

changes in the method of operation, business structure

and labor arrangements of a venture. Otherwise, the free

flow of capital and efforts to revive or expand a weak

enterprise might be frustrated.

ee eee Se ae

Sibi a ek AEN aN na hk Shs aha Din id tah

These principles are particularly applicable to the ef-

forts of a trustee or debtor-in-possession to save a carrier

from complete collapse and liquidation. Unless the debtor-

in-possession is permitted to act promptly, albeit unilater-

ally, in avoiding onerous employment terms that will pre-

vent it from continuing as a going concern, the enterprise,

and with it the employment of its workers, may fail. Al-

though a solvent employer might be able to survive con-

tinuation of the status quo pending the protracted nego-

tiations, including arbitration and mediation as provided

j for by §6 of the RLA, a trustee or debtor-in-possession

ER se

12a

in charge of a carrier teetering on the bee of disaster

would, if saddled by onerous executory terms of its prede-

cessor’s agreements, not be able to continue in business

that long.® Indeed, REA, as debtor-in-possession, main-

tains that unless it carries out immediately the plan

(Plan B-2) which it has initiated for drastic reductions

in its service-center facilities and regional accounting

offices, requiring substantial reductions in rates of pay

and. operational economies, it will not be able to continue

in operation at all.

For these reasons we are persuaded that REA, as the

debtor-in-possession in bankruptcy, is a new employer

which, while obligated as a carrier to negotiate with its

employees’ collective bargaining represntative, is not

bound to follow the elaborate and protracted procedures

of §6 of the RLA before putting into effect its proposed

terms of employment. Where its employees are repre-

sented, as here, by collective bargaining representatives,

6 As one commentator observed:

‘*It is doubtful that the Penn Central reorganization will con-

tinue long enough to enable its trustees to resolve the train

crew dispute with the unions. It is even more doubtful that

a Chapter X or XI proceeding for an airline can remain

viable for the period required to exhaust the procedures of

the RLA. Hence, the operation of that Act seems effectively

to preclude the resolution of most labor relations disputes in

a bankruptcy rehabilitation proceeding for a railroad or an

airline. Moreover, the RLA seems also to preclude any in-

terim relief from the onerous collective bargaining contract

of a railroad or an airline in bankruptcy proceedings. Where

the trustee, receiver or debtor in possession does not exercise

the option to assume or reject such a contract, the Act fore-

stalls the negotiation of a new and less onerous contract te

apply while the proceedings are pending.’’ Countryman,

Ezxecutory Contracts in Bankruptcy, Part II, 58 Minn. L.

Rev. 479, 498 (1974).

Section 77(n) of the Bankruptcy Act applies, of course, to the

Penn Central, requiring it to follow the procedures prescribed by

§ 6 of the Railway Labor Act.

F

3

¥

x

z

DS

%

3

13a

it is obligated merely to give reasonable notice of its pro-

posed terms and to negotiate in good faith for a reason-

able length of time before putting them into effect. In

arriving at this conclusion we are not unmindful of the

Supreme Court’s dictum in Burns to the effect that there

will be instances where, when a new employer retains all

employees in a unit, it will be appropriate for the em-

ployer to consult with the employees’ bargaining repre-

sentative before fixing new terms, 406 U.S. at 294-95.

However, we do not interpret this exception as mandating

that a new employer, pending negotiation of a new agree-

ment with the union (which the debtor-in-possession here

is obligated to undertake by §2 of the RLA, 45 U.S.C.

§ 152) must adhere unqualifiedly to the terms of its prede-

cessor’s agreements. We read this suggested exception

as being limited to those situations where employees are

led at the outset by the successor-employer to believe that

they will have continuity of employment on pre-existing

terms and as not applying where the new employer dis-

pels any such impression prior to or simultaneously with

its offer to employ the predecessor’s work force, Spruce

Up Corp., 209 NLRB No. 19, 85 LRRM 1426 (1974), see

Note, The Bargaining Obligations of Successor Employers,

88 Harv. L. Rev. 759, 777-78 (1975).

In the present case REA as debtor-in-possession has

not misled employees into the belief that it would adhere

to pre-existing terms, conditions and scope of employ-

ment pending negotiations with the unions. On the con-

trary, the Chapter XT proceeding, which was widely pub-

licized, put the unions and REA employees on notice that

changes would be required to avert collapse of REA. The

debtor-in-possession, furthermore, then initiated changes

by putting into effect a series of retrenchments and econo-

mies designed to enable operations to be continued on a

lesser scale, including the partial implementation of Plan

B-2, deferred payment of 10% of its union payroll, and

reduction in holiday pay.

l4a

Appellants further contend that, even if the district

court had authority under § 313(1) of the Bankruptcy Act

to authorize REA to reject the debtor’s collective bargain-

ing agreements with the unions, the district judge abused

his discretion in granting such authority in this case,

since he failed to balance the equities, including the em-

ployees’ inability in Chapter XI proceedings to evaluate

and obtain compensation for loss of their pension, welfare,

seniority and other contract rights. See Matier of Over-

seas National Airways, Inc., 238 F.Supp. 359, 361-62

(E.D.N.Y. 1965). REA has countered by furnishing esti-

mates of the dollar amounts that it would be obligated

to pay under its agreement with BRAC if that agreement

were continued in effect and estimates of the amounts

which it proposes to save through consolidation and re-

trenchment under Plan B-2. However, in view of the

serious effects which rejection has on the carrier’s em-

ployees it should be authorized only where it clearly ap-

pears to be the lesser of two evils and that, unless the

agreement is rejected, the carrier will collapse and the

employees will no longer have their jobs. Here the record

fails to indicate clearly the extent to which each agree-

ment precludes continued operation of REA, the extent

to which the district court weighed the conflicting equities,

or any findings by the court other than its statement that

‘‘in any ordinary sense of the words the two contracts

are ‘onerous and burdensome’’’. We note, for instance,

that while certain clauses of REA’s contract with BRAC

would impose heavy burdens on REA, at least some of

these clauses do not appear in its contract with IAM.

Accordingly, substantially for the reasons stated in re-

manding Kevin Steel, we remand the case to the district

court for further consideration and findings on the ques-

tion of whether REA’s agreements with BRAC and IAM

are sufficiently onerous and burdensome to warrant an

authorization to the debtor-in-possession to reject them.

te nn ee ee ee

15a

APPENDIX "B”

[Filed May 19, 1975 S.D. of N.Y.]

OPINION

In Re:

REA Express, Inc., Debtor,

REA Express, Inc., Debtor and

Debtor-In-Possession,

Appellant,

-against-

BroTHernoop or Raruway, AIRLINE AND

Srgamsuip Cuerks, Freicur HaNnpuers,

Express anp Station Emptoyres, AFL-CIO

and

INTERNATIONAL ASSOCIATION OF MACHINISTS,

Appellees.

75 B 253

This is an appeal from an order of Bankruptcy Judge

Galgay made on April 29, 1975. The order denied a mo-

tion by REA Express, Inc., debtor in possession in a pro-

ceeding under Chapter XI of the Bankruptcy Act, for an

order permitting the rejection of two executory contracts

between the debtor and two labor unions (referred to in

short as BRAC and IAM). Authority for such an order

is found in Section 313(1) of the Act (11 U.S.C. § 713(1)).

Authority for the appeal is found in 11 U.S.C. § 67 (c)

and Rules 801 and following of the Bankruptcy Rules.

The Bankruptcy Judge filed on May 2, 1975, an opinion

giving the reasons for his decision.

1,

The Bankruptcy Judge found and it is undisputed that

the two contracts are “‘executory’. He stated that he would

16a

assume that a collective bargaining contract could be re-

jected but he concluded that rejection of the two contracts

by REA ‘‘is not the kind of rejection or disaffirmance in-

tended by Congress nor would it be within the overall

scheme of Chapter XI.’’

The Bankruptcy Judge believed that rejection should be

permitted if the contracts were ‘‘onerous and burdensome’”’

but he appears to have felt that such a finding could never

be made if it would permit rejection of a collective bargain-

ing contract.

The findings of fact of the Bankruptcy Judge (which are

accepted) show, however, that in any ordinary sense of the

words the two contracts in suit are ‘‘onerous and burden-

some’’. This expression appears to be quoted from In re

Overseas National Airways, Inc., 238 F.Supp. 359 (E.D.N.Y.

1965). Section 313(1) does not itself provide any guidance

to the exercise of the power of rejection but it seems clearly

intended that rejection should be permitted if it would be

beneficial: to the estate of the debtor. See 8 Collier on

Bankruptcy (14th ed.) 206-207. The findings of the Bank-

ruptcy Judge show that in the circumstances of REA these

two contracts are detrimental to its operations and thus to

its estate.

2.

There is nothing cited in legislative history to indicate

that collective bargaining agreements cannot be rejected

under Section 313(1). 8 Collier on Bankruptcy (14th ed.)

199 states: ‘‘There is no restriction on the type of ex-

ecutory contract that may be rejected.’’

Judge Levet some years ago decided that collective bar-

gaining agreements were subject to rejection under Section

313(1). In re Klaber Bros. Inc., 173 F.Supp. 83 (1959).

Later decisions to the same effect are collected in Judge

Knapp’s opinion in Shopmen’s Local Unions etc. v. Kevin

-—

Steel Products, Inc., 381 F.Supp. 336 at 338 (1974) (now

in the Court of Appeals, with oral argument said to be

scheduled for June 11, 1975). Judge Knapp’s decision,

which is contrary to that of Judge Levet, is easily dis-

tinguishable on the facts; from the broad conclusion drawn

by Judge Knapp, I must, with great deference to a learned

colleague, respectfully dissent.

17a

3.

The Bankruptcy Judge did not reach a point made for

appellees, namely, that Section 77(n) of the Bankruptcy

Act (11 U.S.C. § 205) precludes rejection by REA of an

executory contract affecting wages or working conditions

of its employees. Section 77(n) provides in part as fol-

lows:

‘‘No judge or trustee acting under this title shall

change the wages or working conditions of railroad

employees except in the manner prescribed in sec-

tions 151 to 163 of Title 45 [Railway Labor Act], as

amended June 21, 1934, or as they may be hereafter

amended.’’

This provision might give some pause were it applicable,

but it is plainly not applicable.

Section 77 of the Bankruptcy Act deals with ‘*Reorgani-

zation of Railroads Engaged in Interstate Commerce’’, was

enacted in 1933 to meet special needs in respect of rail-

road reorganizations, and would seem to have no conceiva-

ble application to REA. By its terms that part of Section

77(n) on which appellees rely applies to ‘‘railroad em-

ployees’’. No claim is made or could be made that the

employees of REA are “‘railroad employees’”’.

The decision in Jn re Overseas Airways, Inc., above cited,

is distinguishable on its facts. If it were applicable to the

case at bar, it would not be followed.

18a

4,

The appellees also rely on a part of the Railway Labor

Act (45 U.S.C. § 1 and following), specifically on that part

of 45 U.S.C. § 152 providing that no change may be made

by a ‘‘carrier’’ in ‘‘working conditions of its employees

... as embodied in agreements except in the manner pre-

scribed in such agreements or in section 156 of this title

[45 U.S.C. §156]’’. This provision does not preclude re-

jection of the ‘‘agreements’’ in bankruptcy. It applies

only during the life of the ‘‘agreements’’. If such ‘‘agree-

ments’’ have come to an end, either by expiration of their

agreed term or by rejection in bankruptcy, then the pro-

vision ceases to have any application.

The order of the Bankruptcy Judge is reversed and the

motion of REA for permission to reject the two executory

contracts is granted.

So ORDERED,

Dated: May 19, 1975

/s3/ Inzen B. Wratr

Inzer B. Wyatt

United States District Judge

19a

APPENDIX ”C”

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

In Proceedings for An Arrangement

No. 75 B 253

In the Matter

—

REA Exprsss, Inc., Debtor.

OPINION

APPEARANCES:

Anverson Russet Kriz & Oxicr, P.C.

630 Fifth Avenue

New York, New York 10020

Attorneys for Debtor

Remy, Fiemine & Reruy, Ess.

1414 Avenue of the Americas

New York, New York 10019

Attorneys for B.R.A.C.

Vuiaveck, Exias, Vuapeck & Lewis, P.C.

1501 Broadway

New York, New York 10036

Attorneys for LA.M.

Joun J. Gateay, Bankruptcy Judge

REA Express Inc. (REA) moves pursuant to See.

313(1) of the Bankruptcy Act and Rule 11-53 of the Rules

of Bankruptcy Procedure to disaffirm two collective bar-

gaining agreements as burdensome and onerous. Two

unions, Brotherhood of Railway, Airline & Steamship

Clerks, Freight Handlers, Express & Station Employees

(‘‘BRAC’’) and International Association of Machinists

20a

and Aerospace Workers (‘‘IAM’’) move to compel REA

to comply with its collective bargaining agreements and to

restore certain deferred wage payments to ‘‘BRAC”’ and

**TAM’’ members.

The material facts developed over two days of hearings

are not in serious dispute and are as follows: REA Ex-

press, Inc. (‘‘REA’’) filed a petition under Chapter XI,

Section 322 of the Bankruptcy Act on February 18, 1975

and by order of this Court on that date, REA was con-

tinued in the possession and operation of its business.

REA is a Delaware corporation with its principal place

of business in New York City. It provides surface and

air express service to customers throughout the United

States. It has some 300 terminals or service center

facilities in all fifty states and Puerto Rico and presently

employs 7,624 persons.

REA is a party te two collective bargaining agreements.

Approximately 6,305 of its employees are covered by a

collective bargaining agreement between REA and BRAC,

which agreement does not expire until December 31, 1975.

Approximately 332 of its employees are covered by a col-

lective bargaining agreement between REA and IAM

which agreement does not expire until June 1, 1976. Dur-

ing 1974 there were approximately 8,500 BRAC employees

and 400 IAM employees. Each collective bargaining agree-

ment prescribes the terms and conditions of employment

for covered employees including (a) wage rates, (b) over-

time pay, (ce) holiday pay, (d) vacation pay, (e) fringe

benefits and (f) unemployment or ‘‘layoff’’ benefits. Each

agreement affects REA’s right to close or discontinue or

‘ consolidate facilities and to transfer or layoff workers.

As of March 28, 1975 REA had incurred liabilities as

debtor in possession of $3,317,000. In addition, it had an

outstanding payroll liability of $4,050,000 and a liability

for ‘‘CODs’’ collected on behalf of its customers of

$1,871,000. REA is presently collateralizing outstanding

—

2la

irrevocable letter of credit issued by First Pennsylvania

Bank, N.A. (‘‘First Penn’’) with cash at the rate of

$75,000 per week and is paying the IRS on account of pre-

filing Railroad Retirement Taxes, $25,000 per week. Some

$500,000 has already been deposited as cash collateral for

letter of credit and some $1,900,000 in letters of credit

remains to be collateralized.

Asserting that it was unable to meet its expenses on a

current basis, REA’s Management, in a collective deci-

sion, deferred payment of 10% of its union payroll for

the four consecutive weekly pay periods commencing Feb-

ruary 24th, March 3rd, 10th and 17th, 1975. This 10% de-

ferral remains a liability of REA and amounts to some

$150,000 per week. In addition, REA has been unable to

pay its union employees some $250,000 due them as holiday

pay for Washington’s Birthday. For each of the four

weeks commencing March 31, 1975, REA requires approxi-

mately $3,500,000 to meet its current obligations assuming

a continuation of the 10% deferral in union wages and the

present level of payments to the First Penn and the IRS.

Revenues are projected at some $3,500,000 per week over

this period with the result that as of April 25, 1975, the

cash balance is estimated at $547,000. These projections

do not take into account the payment of the $3,317,000 in

DIP liabilities already incurred.

Assuming the continuation of a 90% union payroll,

REA claims it cannot continue to operate without either

generating more cash or substantially reducing its costs.

It is not meeting its obligations currently and seems to

have survived to date by deferring obligations to trade

creditors, equipment lessors and its employees.

REA’s gross payroll amounts to some $1,700,000 per

week with wages representing some 60% of REA’s total

weekly expense. Of this gross payroll some $1,500,000

represents union wages of which 95% is paid to BRAC

members and the balance to IAM members. As previously

22a

noted, 10% of the union payroll has been deferred for

several weeks allegedly due to lack of cash while executive

payroll has been reduced between 15% and 20%.

REA has generated two alternate plans or programs de-

signed to revise its operations and reduce its costs of op-

eration. These plans, known as A and B-2 have not been

implemented because of provisions contained in its col-

lective bargaining agreements with BRAC and IAM.

During the period from 1969 (when current management

took over) to 1973, REA’s expenses almost consistently

exceeded its revenues. In 1974, REA, for the first time,

realized a small profit. However, starting in or about

November of last year, adverse economic conditions brought

about a decline in revenues, and on February 18, 1975 these

proceedings were filed. Despite reductions in its expenses

REA has been unable thus far to keep pace with declining

revenues.

REA’s plan B-2 contemplates the closing of 61 service

centers and the consolidation of 53 service centers; the

elimination of 2 regional accounting offices; and the reduc-

tion of service center facilities from 301 to 187. REA claims

the effect of the implementation of Plan B-2 will be to re-

store the balance between REA’s operating revenues and

expenses so that in June of this year REA will show a small

operating profit and by August of this year, it projects an

excess of revenues over operating expenditures on a per-

manent basis. Even with the implementation of Plan B-2,

REA claims it could not operate profitably at present reve-

nue levels and still pay 100% of existing payrolls as man-

dated by its collective bargaining agreements with BRAC

and IAM.

REA’s Plan A is an all air express plan which com-

pletely eliminates surface operations. It contemplates the

closing of 297 service centers, the use of 140 air terminals

and 328 ‘‘third-party’’ locations. REA would end up with

23a

144 operating facilities servicing 472 airport locations. The

vehicle fleet would be reduced from 6,447 to 784 and the

number of employees would be reduced to 1800. Plan A

contemplates profits for REA commencing with August,

1975. Like Plan B-2, the implementation of Plan A will

not result in profitable operations without a reduction in

existing payrolls. The cash flow projections for both

Plan A and Plan B-2 do not take into account any of the

one-time costs of implementation or the payment of exist-

ing debts. It is claimed, however, it will provide a basis

on which a successful operation may be predicated.

REA’s agreement with BRAC required a 15% wage in-

crease on April 30, 1973 and eight cents per hour cost of

living adjustment on February 3, 1974, a ten cents per hour

adjustment on July 1, 1974, a 10% increase on October 1,

1974 and nine cents per hour adjustment on February 1,

1975. REA’s agreement with IAM required similar in-

creases to those granted to BRAC.

In 1974 REA paid its employees approximately $101,000,-

000 in wages, $9,000,000 in vacation pay, and $3,000,000 in

holiday pay. Under the collective bargaining agreements

with BRAC and IAM, REA is required to pay supplemen-

tary unemployment. Accrued vacation benefits required

by the Union agreements total $11,000,000. In the event

BRAC members are layed-off they are entitled under their

collective bargaining agreement to $18.00 per day unem-

ployment benefits for some 781 days of which REA must

pay $5.30 per day per employee until Railroad Unem-

ployment benefits are exhausted and, thereafter, REA must

pay the full $18.00 per day. In 1974 these benefits cost

REA almost $600,000.

REA’s agreement with BRAC required comparability

increases which have not yet been implemented but if they

are will increase REA’s payroll costs.

Rule 12 of REA’s agreement with BRAC governs REA’s

right to effect the transfers and consolidations inherent in

24a

either Plan A or Plan B-2. Rule 12 may involve delays up

to at least 60 days, and it requires arbitration of any dis-

pute respecting a transfer or consolidation upon demand by

the Union. BRAC can not deny REA’s right to change

its operations, but it may compel arbitration of the ‘‘man-

ner of implementing the contemplated change’’. Em-

ployees who are laid-off are entitled to supplementary un-

employment benefits and those who elect to follow their

work are entitled to free movement of household goods,

free transportation, time-off to relocate and the like.

The implementation of Plan B-2 involves changes in

what are known as ‘‘over-the-road runs’’. Such changes

are governed by Rule 8 of the BRAC agreement which re-

quires consultations between REA and Union before such

changes may be effected.

DISCUSSION

REA asserts it is unable to effect the proposed consolida-

tion under its existing collective bargaining agreements by

reason of the delays inherent in following the procedures

thereby required and by reason of the costs to REA man-

dated such agreements. REA asserts it cannot meet its

contractual wage and fringe benefit obligations; it claims

it cannot meet its obligations to suppliers as debtor in

possession; and it cannot incur substantial liabilities for

unemployment and relocation benefits required by its agree-

ments with BRAC and IAM. It further claims it must

effect reductions in costs promptly and inexpensively.

REA also claims it is unable to pay the wages presently

required by it collective bargaining agreements with

BRAC and IAM and the cost-of-living, comparability and

other benefits which will, in the future, be required by those

agreements.

Further it says if REA is permitted to promptly imple-

ment either Plan A or Plan B-2 and to maintain its union

25a

payroll at existing levels it has a reasonable chance of

obtaining needed financing, restoring profitability and ef-

fecting a plan of arrangement with its creditors. It claims

it cannot accomplish these objectives unless its collective

bargaining agreements with BRAC and IAM are disaf-

firmed.

For all of the foregoing reasons, REA asserts that the

collective bargaining agreements between it and its unions

BRAC and IAM are onerous and burdensome.

The unions urge that the collective bargaining agree-

ments between REA and them are governed by the Rail-

way Labor Act, that REA is a ‘‘Carrier’’ subject to the

provisions of that statute and that it cannot change the

‘“rates of pay, rules or working condition of its employees’’

except in the manner prescribed in the Act or in the col-

lective bargaining agreement itself. They claim REA

acted illegally in unilaterally reducing the wages paid to

its employees who are covered by the instant collective

bargaining agreements.

They fail to directly claim that these collective bargain-

ing agreements are not onerous and burdensome but say

if they are so are the terms of a great number of con-

tracts and agreements to which REA is a party, yet REA

has not sought to have this Court disaffirm any of its other

agreements.

Finally it claims that this Court has the power and should

compel REA to honor the terms of the labor agreement.

Sec. 313(1) of the Bankruptcy Act permits the rejection

of executory contracts of the debtor upon notice to the par-

ties to such contracts and to such other parties as the Court

may designate.

Assuming, without deciding that this Court has the

power to reject a collective bargaining agreement, it may

exercise that power if it finds the agreement to be executory

26a

and ‘‘onerous and burdensome’’ to the debtor. Cf Shop-

men’s Local v. Kevin Steel Products, (2d Cir.) 74-215A.

Both labor agreements herein are executory within the

meaning of Sec. 313(1) since their expiration dates are

the end of 1975 and the middle of 1976.

This case turns then on the meaning of ‘‘onerous and

burdensome’’ in the context of a dispute wherein REA

claims the terms of the collective bargaining agreements

are so oppressive, restrictive and expensive that it cannot

possibly survive in a Chapter XI proceeding unless these

agreements are scrapped, and impliedly, a more congenial

one negotiated.

Ordinarily the rejection of an executory contract is

based upon the debtor’s desire to end a commitment which

presents a financial drain on the company and thereby en-

able it to come out of a Chapter XI proceedings by the ac-

ceptance of a plan of arrangement by its creditors. It

does not mean that an agreement which, when entered into

was satisfactory, but because of changing economic cir-

cumstances, is now too expensive. The usual instance of a

contract appropriate for rejection is a lease of expensive

office facilities, say, on Park Avenue, and because of re-

duced staff and the change in the nature of the business,

such prestigious and expensive quarters are no longer

needed and its continued performance thereunder would be

a financial drain.

Another example would be the rejection of executory

contract involving the employment of dress designers

after the Chapter XI debtor changed the nature of its

operation from designing and manufacturing its own

dresses, to that of a jobber or contractor doing work for

other manufacturers who had their own designers.

Here, REA says, if it can reject and disaffirm these labor

contracts then it can embark on Plan A or Plan B-2 and

within a short time rehabilitate itself. It says the contin-

27a

uance of the executory contracts is a financial drain as it

probably is, but it wants to retain its labor force to con-

tinue the operation of its business but at some level of

wages, working conditions and other provisions less than

those in the present agreements. To permit the rejection

of these contracts would destroy the economic balance of

power each party enjoyed when the contracts were entered

into. The employees would be at a substantial disadvant-

age and be in the position where REA could dictate the

terms of any new agreement. Further Sec. 313(1) con-

templates upon the rejection of an executory contract, the

party who suffers thereby is allowed to file a claim in the

proceeding for its provable damage. Apart from those

damages easily calculated such as past wages, vacation and

severance pay, how can a damage figure be placed on the

value of pension rights, welfare rights, seniority rights,

ete. to each of the affected employees. The Bankruptcy

Court is a Court of Equity and must balance these equities

in the exercise of its discretion.

The history of the hostility between management and

labor in REA since 1969 is the subject of an opinion in

REA EXPRESS Inc. v. BRAC, 358 Fed Supp. 760, by

Hon. Edward Weinfeld. In it Judge Weinfeld recites the

long and difficult experiences of both parties in connection

with a threatened strike.

In that opinion, Judge Weinfeld made comments which

are illuminating and relevant in this proceeding.

‘“‘That a carrier is in economic straights does not re-

quire its employees to carry the burden of its eco-

nomic problems.... REA is a private enterprise cor-

poration operating under a laissez-faire economy; the

circumstances that it cannot meet the demands of a

competitive system and may face bankruptcy does not

require its employees to accept a wage they deem in-

adequate and to surrender their right to strike. To

28a

hold that the employees assertion of their rights mani-

fests a failure to exert every reasonable effort to re-

solve all disputes and thereby constitutes a Sec. 2

First Violation is without validity. It suggests that

a court has the power to apply a coercive force upon

the employees to yield to the carrier’s offer even

though they deem it inadequate—in effect it would be

to impose upon them the financing of an under-capital-

ized carrier when its own stockholders, here few in

number, refuse to make further investments and sup-

ply needed capital.’’

In the matter of Overmeyer, Bankruptcy Judge Roy

Babitt, Collier-Bankruptcy Cases, Volume 1, pg 522, in

refusing to permit the rejection of a lease of real property

stated:

‘Moreover, this debtor does not contend that the

warehouse is totally unprofitable; it merely states that

the profits generated from its operation are not suffi-

cient and that West Cash & Carry should now be told

that a contract under which it has performed its pact

for eight years is now to be negated, thereby forcing

West Cash & Carry to renegotiate a new contract of

lease or peremptorily remove its operation elsewhere.’’

After commenting on his power to do equity he goes on

‘**T conclude, in the exercise of my judgment, that this

is not the kind of rejection purposed by Congress by

its language in Sec. 313(1). Nor would such rejection

be within the overall scheme of Chapter XI. Chapter

XI is not a guarantee that every plagued company

will succeed in Chapter XI rehabilitation, Zn re

Webcor, Inc. 392 F.2d 893 (7th Cir. 1968), cert. denied

393 U.S. 837 (1968), and it gives no basis to hold that

performing parties to agreements which years later

might have become less economically desirable than

they were at the beginning, are to be prejudiced in

their reliance on such agreements made with sophisti-

cated debtors under terms, one may assume, as advan-

29a

tageous to that debtor as could be when originally

negotiated.’’

The Court has been called on to decide this issue, It

has not been called on to weigh for the debtor or the

Unions, the consequences which might flow from adjudica-

tion, including possible termination of thousands of jobs

in these recession days, unemployment for a period of

time, loss of pension payments to former employees and

other disabilities. Surely both parties are sophisticated

enough to know where their interests lie.

I conclude that REA’s application to reject and dis-

affirm the collective bargaining agreements with BRAC

and IAM should be denied. In my judgement this is not

the kind of rejection or disaffirmance intended by Con-

gress nor would it be within the overall scheme of Chapter

XI.

As has been observed, Chapter XI is not a guarantee

that every plagued company will succeed in Chapter XI

rehabilitation. In re Webcor Inc. 392 F.2d 893 (7th Cir.

1968).

Regarding the Union’s demand that the Court order

that REA honor its collective bargaining agreements and

to pay 100% of the rate of wages called for therein, I de-

cline to do so,

The Unions have remedies available to them under such

agreements, and this court may await the administrative

grievance process, see Nathanson v. NLRB 344 US 25

(195).

In view of the financial conditions of the debtor in pos-

session detailed above, I feel the parties to the agreements

can evaluate the wisests course to follow in light of all the

circumstances. REA’s application for authority pursuant

to Sec. 313(1) of the Bankruptcy Act to disaffirm its execu-

tory contracts with BRAC and IAM is denied.

30a

The applications of BRAC and IAM seeking an order

of this Court directing REA to pay such sums as are due

and payable to employees who are members of their respec-

tive unions under the terms of existing labor agreements

between the parties is also denied at this time without

prejudice.

Ir Is So OnpErep.

Joun J. Gataay

Dated: New York, New York

May 2nd, 1975

é