Opposition Brief — Eastern Pilots Merger Committee v. Continental Airlines, Inc
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No. 02-0058 _. FILBD
In The OFFICE OF THE CLERK
Supreme Court of the Anited States
| 4
EASTERN PILOTS MERGER COMMITTEE,
Petitioner,
v.
CONTINENTAL AIRLINES, INC.,
Respondent.
r
On Petition For A Writ Of Certiorari
To The United States Court Of Appeals
For The Third Circuit
o
RESPONSE TO PETITION FORA
WRIT OF CERTIORARI
o
YOUNG CONAWAY STARGATT &
TAYLOR, LLP
JAMES L. PATTON, JR.
Counsel of Record
ROBERT S. BRADY
Scott A. HOLT
TIMOTHY E. LENGKEEK
The Brandywine Building,
17th Floor
1000 West Street
Wilmington, Delaware 19801
P.O. Box 391
Wilmington, Delaware
19899-0391
(302) 571-6600 -
Counsel for Respondent
COCKLE LAW BRIEF PRINTING CO. (800) 225-6964
- ORCALL COLLECT (402) 342-2831
REST AVAILABLE COPY Jira
QUESTION PRESENTED
Whether the Third Circuit Court of Appeals correctly
concluded that its previous decision in Jn re Continental
Airlines, Inc., 125 F.3d 120 (3d Cir. 1997), cert. denied, 522
U.S. 1114 (1998) precludes a post-petition award of senior-
ity integration into reorganized Continental’s workforce?
il
CORPORATE DISCLOSURE STATEMENT
Eastern Pilots Merger v. Continental Airlines,
Committee, Respondent
Petitioner
Pursuant to Supreme Court Rule 29.6, Continental
Airlines, Inc. states that there is no parent or publicly held
company owning 10% or more of the corporation’s stock.
/s/ James L. Patton, Jr.
(Signature of Counsel of Record)
eg as pared te en ea
ili
TABLE OF CONTENTS
Page
QUESTION PRESENTED..............::0::sseeeeeessreeserreeens i
TABLE OF AUTHORITIES ..............:seceeeeeseeeneseeeeees il
STATEMENT OF FACTS AND THE CASE. .............. 3
REASONS FOR DENYING THE WRIT.................+.. 9
CERTIORARI SHOULD BE DENIED BE-
CAUSE THIS SAME APPEAL HAS ALREADY
BEEN MADE BY THE PETITIONER AND
DENIED BY THIS COURT...........::ccsscseesrreeeeees 9
CERTIORARI SHOULD BE DENIED BE-
CAUSE THERE IS NO CONFLICT IN AU-
THORITY THAT REQUIRES THIS COURT'S
INTERVENTION. ...........:cccceeeeeeeeeeeeeseeeeeeseeeees 11
THIS CASE IS NOT OF SUCH IMPERATIVE
PUBLIC IMPORTANCE AS TO REQUIRE
IMMEDIATE REVIEW BY THIS COURT...... 16
CONCLUSION ..........c:ssscccesesceeeeeseeceeecseseeeeneeesaneeeeees 21
iv
TABLE OF AUTHORITIES
Page
CASES
Century Indemnity Co. v. National Gypsum Co. (In
re National Gypsum Co.), 208 F.3d 498 (5th Cir.),
cert. denied, 531 U.S. 871 (2000) .................. 11, 12, 13, 14
Consolidated Rail Corp. v. Railway Labor Executives
Sats, GFE GD. Gee Seiichi ee
Counties Contracting & Constr. Co. v. Constitutional
Life Ins. Co., 855 F.2d 1054 (3d Cir. 1988)................... 13
In re Continental Airlines, Inc., 125 F.3d 120 (3d
AE IIE ctovinrcsnentecsnnticsssssignionaptionsniionnaalenpeabelaiaianintl passim
In re Continental Airlines, Inc., 279 F.3d 226 (3d
CARE BRED issnsinaritninunnnnisilanianasiainneneciaptrdaitabuaabinveai passim
In re Trans World Airlines, Inc., 145 F.3d 124 (3d
GR ee sitkenarnitecinchiseinsenisnndsadieniatabaas dil iadentaduabeienaenentes 13
Langenkamp v. Culp, 498 U.S. 42 (1990)...........cccceeeeeeeeees 14
LPP Claimants v. Continental Airlines, Inc., 522
a ee Ce sccststsinnnlsivcaeislidicddgienieniabasmanniuiancenn iy
NLBB v. Bildisco & Bildisco, 465 U.S. 513 (1984)......11, 14
Ohio v. Kovacs, 469 U.S. 274 (1985)...........ccsscossccsssccssseees 15
STATUTES
FA PRs 0 Se ikntincisiciinbiecaniadennoinn 5, 10, 12
Be BE ehkitencadencctncicialiadicinaiemdinin 1, 6, 9, 10, 16
BE GET. Da ei ccccvescesvenesesecsnntsitentestaneenionsslnncssnsoesadnngeieesens 3
Vv
TABLE OF AUTHORITIES -— Continued
Page
OTHER AUTHORITIES
: LoPucki, L. and Kalin, S., The Failure of Public
Company Bankruptcies in Delaware and New
York: Empirical Evidence of a “Race to the
Bottom”, 54 Vand. L. Rev. 231 (2001)..........:cseseeeseeeeees 19
Skeel, D., What’s So Bad About Delaware?, 54
, _ Vand. L. Rev. 309 CIID on cccnctninsavsnnsacscsrneientnemnainivonetnnesen 20
1
CONTINENTAL’S BRIEF IN OPPOSITION
OF THE PETITION
The Eastern Pilots Merger Committee (““EPMC” or
“the Pilots”), through its Writ of Petition for Certiorari (the
“Petition”), asks this Court to decide whether the Court of
Appeals for the Third Circuit erred when it determined
that EPMC’s seniority rights could be reduced to a mone-
tary proof of claim in bankruptcy. If this question sounds
familiar to this Court, there is a good reason. It is virtually
the identical question that members of EPMC asked this
Court to decide in an earlier petition in this case.
In 1997, a group of airline pilots, including members
of EPMC, petitioned this Court to grant certiorari regard-
ing the decision of the Third Circuit Court of Appeals in Jn
re Continental Airlines, Inc., 125 F.3d 120 (3d Cir. 1997)
(“Continental I”). In their petition, the Pilots asked this
Court to review whether the substitution of their claims
for seniority rights with a claim for monetary damages in
bankruptcy violated the terms of 11 U.S.C. § 1113 (Resp.
App. 2).' This Court denied the petition. See LPP Claim-
ants v. Continental Airlines, Inc., 522 U.S. 1114 (1998).
Now, almost five years after their petition was denied,
the Pilots are back before this Court asking the same
question in a related proceeding, In re Continental Air-
lines, Inc., 279 F.3d 226 (3d Cir. 2002) (“Continental IT”). In
Continental II, however, the Third Circuit merely affirmed
the lower court’s interpretation of Continental I and
imposition of sanctions against the Pilots for violating the
' “Resp. App. __” refers to Respondent’s Appendix to Response to
Petition for a Writ of Certiorari.
2
confirmation order, which was affirmed by Continental I.
The Pilots make little effort to recast the issue, once again
arguing in the opening paragraph of the Petition that the
Third Circuit’s decision that seniority rights could be
reduced to a dischargeable bankruptcy claim “effectively
nullified Bankruptcy Code section 1113.” Petition at 1.
Thus, the question remains the same and only the pool of
petitioners, which is a subset of the original group of
pilots, has changed.
Beyond the obvious reasons for denying this writ —
that this Court, in Continental I, previously declined to
review the issue raised in the Petition — the arguments
made by EPMC remain unpersuasive. The Pilots first
argue that Continental IJ must be reconsidered because
the Third Circuit’s treatment of the Pilots’ claims is in
conflict with one of this Court’s decisions and a decision
from the Court of Appeals for the Fifth Circuit. Upon
examination, however, the purported conflict is illusory.
The Pilots have also failed to demonstrate that this issue
is of sufficient public importance to warrant this Court’s
review. In the end, the Petition contains the same, recycled
appeal that has been the basis for nearly ten years of
litigation in this case.
The Respondent respectfully requests that the Peti-
tion be denied and the decision in Continental II left
undisturbed.
eS ee
3
STATEMENT OF FACTS AND THE CASE
The Collective Bargaining Agreement
This unending appeal traces its origin to a collective
bargaining agreement between Eastern Airlines (“East-
ern”) and its pilots’ union, the Air Lines Pilot Association
(“ALPA”) that was executed on February 23, 1986. (Pet.
App. 54a).’ The collective bargaining agreement contained
labor protective provisions (“LPPs”) that purported to
secure protection of Eastern pilots’ seniority rights in the
event of a merger. Jd. The LPPs, in effect, would allow for
the integration of Eastern’s seniority lists with the other
carrier’s list. Jd.
On February 24, 1986, Texas Air Corporation, parent
of Continental Airlines, Inc. (“Continental”) acquired
Eastern. Jd. ALPA asserted that the acquisition was a
merger requiring seniority integration of the Eastern and
Continental pilots’ seniority lists under the LPPs. Id. The
matter was thereafter submitted to arbitration after
Eastern and Continental took the position that the issue
was not subject to bargaining. (Pet. App. 55a).
The Reorganization Cases
In 1989, before the matter was arbitrated, Eastern
filed petitions for relief under chapter 11 of title 11 of the
United States Code (the “Bankruptcy Code”) and con-
tended that the arbitration was stayed under section 362
of the Bankruptcy Code. (Pet. App. 56a). After several
? “Pet. App. __” refers to Petitioner’s Appendix to Petition for a
Writ of Certiorari.
4
lower court decisions and appeals, the Second Circuit held
the automatic stay did not preclude arbitration. Id.
On December 3, 1990, Continental filed for chapter 11
protection in the United States Bankruptcy Court for the
District of Delaware (the “Bankruptcy Court”). Continen-
tal informed the arbitrator that it was in bankruptcy and,
therefore, its participation in the arbitration was stayed
pursuant to section 362 of the Bankruptcy Code. (Pet. App.
57a). ALPA and Eastern, on the other hand, proceeded
under the Second Circuit’s directive, and met with the
arbitrator at a pre-arbitration conference in April 1991. At
the conference, ALPA took the position that it was entitled
to prospective integration of the Eastern and Continental
pilots’ seniority lists, back pay, and front pay from the date
of the arbitration award until the Eastern pilots began
flying for Continental. Jd.
The Eastern Pilots’ Claims in the Continental
Bankruptcy
The next event would play a significant role in the
outcome of this dispute. During the course of Continental’s
bankruptcy proceedings, ALPA on behalf of its members,
filed proofs of claim against Continental and its related
debtors. (Pet. App. 3a). In the claims, ALPA contended that
the former Eastern pilots were entitled to specific per-
formance of seniority rights under the LPPs as well as
monetary damages. Id.
These proofs of claim created issues that Continental
needed to address prior to confirmation of its plan of
reorganization. Continental had an agreement with its
investors who required a number of conditions to closing,
including the entry of an order providing that the former
- Pe ee ee ee ee one
° 5
Eastern pilots were not entitled to specific performance or
other injunctive, equitable, or other prospective relief
against the debtors or the reorganized Continental. (Pet.
App. 88a).
To resolve the ALPA claims, Continental requested the
Bankruptcy Court to declare that the claims were, at best,
pre-petition unsecured claims, compensable by an award
of monetary damages. (Pet. App. 58a) ALPA, in turn,
argued that the claims were not unsecured pre-petition
claims that could be converted to money damages, and
that only an arbitrator could determine the appropriate
remedy under the LPPs. Id.
On February 11, 1993, the Bankruptcy Court held
that an award of monetary damages would be available as
a matter of law in lieu of prospective relief, including
specific performance of the seniority rights, if the former
Eastern pilots’ claims were ultimately found to be valid.
(Pet. App. 59a). As a result, the Bankruptcy Court con-
cluded that the claims constituted dischargeable “claims”
within the meaning of section 101(5) of the Bankruptcy
Code. Id.
On April 16, 1993, the Bankruptcy Court confirmed
Continental’s Second Amended Joint Plan of Reorganiza-
tion. The confirmation order included its prior rulings that
any valid claims based on the LPPs would give rise to a
right of payment dischargeable in bankruptcy, and that
the Eastern pilots had no right to injunctive, equitable or
other prospective relief. (Pet. App. 60a). The order also
enjoined any present or former employee of Eastern from
commencing, conducting or continuing any suit, arbitra-
tion, action or other proceeding against Continental. Id.
6
The First Round of Appeals
ALPA and a group of former Eastern pilots (the “LPP
Claimants”) appealed the confirmation order, during
which time ALPA, representing approximately two-thirds
against those who filed proofs of claims, settled its dispute
with Continental. The LPP Claimants did not settle and
continued with their appeal.’
The United States District Court for the District of
Delaware (the “District Court”) affirmed each of the
Bankruptcy Court’s orders, except for the injunction of the
arbitration proceedings.‘ (Pet. App. 62a). The District
Court held that the Bankruptcy Court had the jurisdiction
and power to determine the nature and treatment of all
claims arising under the collective bargaining agreement
between Eastern and its pilots. Jd. Therefore, it affirmed
the Bankruptcy Court’s order that any award for seniority
integration be treated as a general unsecured claim for
monetary damages. Jd. Unsuccessful at the District Court
level, the LPP Claimants appealed to the Third Circuit
Court of Appeals.
In Continental I, the Third Circuit affirmed the
District Court, ruling that “the Bankruptcy Court was well
* ALPA had filed proofs of claims on behalf of all Eastern pilots,
including the LPP Claimants. (Pet. App. at 53a n.1). ALPA’s representa-
tion of the LPP Claimants ceased, however, after they instituted an
action against ALPA in federal court for defamation, breach of the duty
of fair representation, and RICO violations. (Pet. App. at 58a n. 4).
* The District Court vacated the injunction on the grounds that the
Bankruptcy Court did not have jurisdiction under section 1113 of the
Bankruptcy Code and that it had not adequately set forth the reasons
for the issuance of the injunction as required by Federal Rule of Civil
Procedure 65(d). (Pet. App. 62a)
7
within its authority to exercise jurisdiction over the issue
of the status of the bankruptcy claims.” (Pet. App. 70a).
More importantly for purposes of the instant Petition, the
Third Circuit concluded “that the right to seniority inte-
gration gives rise to a ‘right of payment’ such that the
remedy constitutes a ‘claim’ dischargeable in bankruptcy.”
(Pet. App. 83a). The Third Circuit recognized that money
damages were an appropriate alternative to the equitable
remedy because relief in the form of seniority rights could
result in the displacement of Continental pilots and have
adverse consequences on the debtors’ workforce. (Pet. App.
82a-83a). The LPP Claimants then, filed a petition for a
writ of certiorari that was denied by this Court. LPP
Claimants v. Continental Airlines, 522 U.S. 1114 (1998).
One would have believed, with the question of
whether a claim for seniority rights could be treated as a
claim in bankruptcy resolved, and the exhaustion of all
avenues of appeal, that the dispute over this issue had
finally ended. Not so.
The New Jersey Action and the Second Round of
Appeals :
On October 23, 1998, EPMC, composed of a group of
former Eastern pilots, filed a complaint in the United
States District Court for the District of New Jersey (the
“New Jersey Court”) against Continental seeking a de-
claratory judgment and injunctive relief (the “New Jersey
Action”). Ignoring their agreement to arbitrate, EPMC
asked the New Jersey Court to enforce the LPPs and
declare that the collective bargaining agreement required
Continental to implement the seniority integration
8
clauses. (Pet. App. 19a; 35a). In response to the com-
mencement of the New Jersey Action, Continental filed a
motion with the Bankruptcy Court to compel compliance
with the confirmation order, enjoin the New Jersey Action,
and impose sanctions against EPMC. Id.
The Bankruptcy Court ruled that the Third Circuit
had determined that all claims held by members of EPMC,
whether before or after bankruptcy, seeking equitable or
non-equitable remedies, had been discharged by the
confirmation order. Accordingly, the Bankruptcy Court
held that EPMC violated the confirmation order by initiat-
ing the New Jersey Action and that Continental was
entitled to sanctions against EPMC for its knowing and
willful conduct. (Pet. App. 49a). EPMC thereafter appealed
the Bankruptcy Court’s decision to the District Court.
EPMC fared no better on appeal. In its written deci-
sion, the District Court recognized that the bankruptcy
process would be meaningless “if Continental I did not
require that any claim for prospective relief through
specific performance be discharged.” (Pet. App. 4a-5a). The
District Court held that although the collective bargaining
agreement survived the bankruptcy process, EPMC’s
demand for specific performance of the seniority integra-
tion clause did not. (Pet. App. 21a-22a). Thereafter, EPMC
filed its notice of appeal to the Third Circuit.
Having been called upon to interpret its decision in
Continental I, the Third Circuit framed the critical ques-
tion in simple terms: “Did this court in Continental I
adjudicate only claims for pre-petition seniority rights or
did our holding include also rights arising post-petition?”
(Pet. App. 7a). Noting it was not a difficult decision, the
PE te ne tt OE LI i PLR
9
Court held that the relief defined in Continental I was,
and continues to be, the only remedy available to EPMC.
The Third Circuit’s holding in Continental II could not
have been more narrowly tailored. It simply held that
Continental I decided the issues presented in Continental
II, Undeterred, EPMC petitioned the Third Circuit for
rehearing and for a rehearing en banc. Those petitions
were denied.
¢
REASONS FOR DENYING THE WRIT
CERTIORARI SHOULD BE DENIED BECAUSE
THIS SAME APPEAL HAS ALREADY BEEN MADE
BY THE PETITIONER AND DENIED BY THIS
COURT.
This Court has already declined to hear the question
presented in the Petition. In its prior petition for certiorari
filed in 1997, the former Eastern pilots characterized the
issue on appeal as “[wJhether the Third Circuit’s opinion
{in Continental I] which authorize[d] the Debtor to unilat-
erally alter or terminate the labor protection provisions of
a collective bargaining agreement under circumstances
where 11 U.S.C. § 1113 was not complied with violates the
mandate of Congress ... ?” (Resp. App. 2). The Court
denied certiorari. LPP Claimants v. Continental Airlines,
522 U.S. 1114 (1998).
Although the Pilots take great pains to frame the
question presented in their current Petition in a way
different from the way they framed it last time, it is in
reality identical to their petition for certiorari filed in
1997. For instance, in their current Petition, the Pilots
state that “[t]he question presented is whether, in these
10
circumstances, the Court of Appeals erred in holding that
those asserted seniority rights could be reduced to bank-
ruptcy claims, dischargeable in Continental’s bankruptcy
proceedings?” Similarly, in the 1997 petition for certiorari,
the Eastern pilots argued that the Third Circuit was
mistaken in its “express reliance on 11 U.S.C. § 101(5) to
alter the right to seniority integration provided for in the
collective bargaining agreement into a ‘claim’ which ‘gives
rise to a right of payment.’” (Resp. App. 18).
This is also the second time the Pilots have argued
that the Third Circuit’s decision violated section 1113 of
the Bankruptcy Code. In the 1997 petition, they asserted
that the Third Circuit’s opinion violated section 1113
because it “Authorized The Debtor To Unilaterally Alter
Or Terminate The Labor Protective Provisions Of [the]
Collective Bargaining Agreement.” (Resp. App. 13). Five
years later, this same argument resurfaces with the Pilots
complaining that the Third Circuit’s decision interpreting
and enforcing its prior decision “effectively nullified
Bankruptcy Code §1113... .” Petition at 1.
The fact that the arguments and issues presented in
both petitions are virtually identical should not be a
' surprise to anyone. After all, Continental IJ was merely an
explanation of Continental I. The Third Circuit character-
ized the critical question in Continental IJ as seemingly.
uncomplicated. (Pet. App. 7a). That is, did “Continental I
adjudicate only claims for prepetition seniority rights or
did our holding include also rights arising post-
confirmation?” The answer, as explained by the court, was
not difficult. “Suffice it to say that when we said ‘any claim
based on an award of seniority integration, we meant
precisely what we said.’ We hold that the proposition now
urged upon us by appellants has been decided and is
LincapoiiHiuictiaenlw uae: ~vitadtisate a ele aaa
11
totally controlled by our decision in Continental I.” (Pet.
App. 10a-11a).
In short, what the Pilots really want is for this Court
to grant certiorari and revisit the Third Circuit's Continen-
tal I decision, a decision this Court already declined to
review.
The Pilots should not be allowed two bites at the apple
when everyone else gets one.
CERTIORARI SHOULD BE DENIED BECAUSE
THERE IS NO CONFLICT IN AUTHORITY THAT
REQUIRES THIS COURT’S INTERVENTION
Under the traditional criteria, the decision below does
not warrant this Court’s review. This is because, contrary
to the Pilots’ position, Continental II does not conflict with
this Court’s decision in NLRB v. Bildisco & Bildisco, 465
U.S. 513 (1984), or the Fifth Circuit’s decision in Century
Indemnity Co. v. National Gypsum Co. (In re National
Gypsum Co.), 208 F.3d 498 (5th Cir.), cert. denied, 531 U.S.
871 (2000). Indeed, the Pilots present the same argument
made in Continental I, reconstituted in a way to fit within
the parameters of this Court’s scope of review. The sup-
posed conflict presented by the Pilots is easily dismantled
upon examination of the cases. E
In Continental II, the Third Circuit reiterated the
Continental I holding that the Pilots’ seniority rights
arising out of the LPPs, including those arising post-
confirmation, had been discharged as a “claim” under
Continental’s plan of confirmation. The appellate court’s
reasoning was straightforward: All of the Pilots’ claims for
seniority rights were based on the LPPs, the Pilots made
12
claims in bankruptcy for seniority relief which, in turn,
could be satisfied by payment of monetary damages, and
these claims were dischargeable in bankruptcy. So there
would be no doubt, the Third Circuit clarified that the
Pilots’ claims included pre and post-confirmation relief,
and referred to EPMC’s own characterization of its claims
as seeking both pre and post-confirmation relief. (Pet. App.
8a).
National Gypsum, the decision that the Pilots cite as
being at odds with Continental II, had nothing to do with
whether an equitable claim can be satisfied by the pay-
ment of monetary damages in a bankruptcy proceeding.
Far from being a “virtually identical fact pattern” as the
Pilots argue at page 20 of the Petition, the issue in Na-
tional Gypsum was whether a chapter 11 plan’s assump-
tion of an executory contract with a zero cure amount was
effective and properly noticed to the party to the agree-
ment. In National Gypsum, a creditor sought judgment
against the debtor post-confirmation because of the
debtor’s refusal to pay an indebtedness arising out of a
pre-petition executory contract. National Gypsum, 208
F.3d at 503. The debtor had assumed the contract when it
filed its plan of reorganization. Jd. at 502. The debtor, in
response, contended that the debt had been discharged
through the plan confirmation process and because the
‘creditor had never filed a proof of claim. Jd. at 503. The
Fifth Circuit concluded that, since the contract had been
assumed, it did not give rise to a claim under section
101(5) of the Bankruptcy Code and thus the debt was not
subject to discharge. Id. at 506-07.
Given the distinct facts of each case, one must wonder
what basis there is for the Pilots’ contention that National
Gypsum is “diametrically opposed” to the holding in
i le i
13
Continental II. Presumably, the Pilots are relying on their
argument, presented in Continental I, that because the
collective bargaining agreement was never rejected by
Continental, any claims arising out of the agreement,
including those for seniority rights, continue to be unsatis-
fied obligations of the debtor, and thus not dischargeable.
The fundamental flaw with this argument, and one of the
bases for the Third Circuit’s decision, was that Continen-
cal, unlike the debtor in National Gypsum, never assumed
the agreement at issue. Continental II (“The reality is the
[collective bargaining agreement] was never assumed.”)
An executory contract, including a collective bargaining
agreement, may not be assumed without bankruptcy court
approval in accordance with section 365 of the Bankruptcy
Code. In re Trans World Airlines, Inc., 145 F.3d 124, 136
(3d Cir. 1998) (“[section] 365 allows a trustee, or debtor-in-
possession, subject to court approval, to ‘assume’ or ‘reject’
an unexpired lease... . ”) (quoting Counties Contracting &
Constr. Co. v. Constitutional Life Ins. Co., 855 F.2d 1054,
1060 (3d Cir. 1988) (finding court approval “mandated for
effective assumption under [section 365(a)]”) (emphasis
added)). In short, Continental never assumed the collec-
tive bargaining agreement under the Bankruptcy Code.
The second distinction between Continental II (and
Continental I) and National Gypsum is that the non-
debtor in National Gypsum never filed a proof of claim.
The Pilots in the instant case, of course, filed proofs of
claim in the bankruptcy case, and requested, among other
things, seniority integration, back pay and front pay. By
filing proofs of claim against the bankruptcy estate, the
Pilots triggered the process of “allowance and disallowance
of claims,” and thereby subjecting themselves to the
14
bankruptcy court’s equitable power. Langenkamp v. Culp,
498 U.S. 42, 44-45 (1990). The Third Circuit reviewed this
concept in painstaking fashion in both Continental I and
Continental II. The appellate court concluded that, al-
though the interpretation of the collective bargaining
agreement was the domain of the arbitrator, the Bank-
ruptcy Court had jurisdiction to determine that any rights
to seniority possessed by the Pilots (pursuant to its proofs
of claims) could be satisfied by the payment of money
damages.
Of course, there is one similarity between Continental
I and National Gypsum that the Pilots conveniently ignore
in their Petition: Parties in both cases unsuccessfully
petitioned this Court for a writ of certiorari. See National
Gypsum, 531 U.S. 871 (2000). If, as the Pilots contend, the
conflict between this case and National Gypsum was so
apparent, then it most certainly would have been an issue
in the latter’s petition. The fact that this Court denied
certiorari in National Gypsum indicates, however, that any
conflict between Continental I and National Gypsum was
not sufficiently compelling to warrant review. The exag-
gerated conflict between National Gypsum and Continen-
tal II (which, is just a reiteration of the holding in
Continental I) deserves even less consideration.
EPMC’s claim that Continental II is inconsistent with
this Court’s ruling in Bildisco is even more puzzling than
its efforts to create a conflict between Continental II and
National Gypsum. Indeed, while the Pilots state in the
argument heading of their Petition that Continental II is
inconsistent with this Court’s decision in Bildisco, they
never truly explain how. Instead, the Pilots repeat the
same argument they made to this Court in their petition
for a writ of certiorari in Continental I, namely, that the
ee ee, ee ee ee ee ee ee ee a
15
substitution of the equitable remedy of seniority amounted
to an alteration or termination of the terms of the collec-
tive bargaining agreement in violation of section 1113 of
the Bankruptcy Code. Of course, this Court refused certio-
rari on that issue, and the Third Circuit in both Continen-
tal I and Continental II expressly rejected it. In
Continental I, for instance, the court noted that the
“[slubstitution of the equitable remedy in no way amounts
to an alteration or termination of the terms of the collec-
tive bargaining agreement.” Continental I at n.15. Its
holding was limited to a pure bankruptcy question, i.e.,
the treatment of the Pilots’ claims under bankruptcy law.
Continental I, 125 F.3d at 135. Continental II affirmed this
holding.
The Pilots would also be wrong to suggest that this
Court has not allowed equitable claims to be converted
into money damages dischargeable in bankruptcy. In Ohio
v. Kovacs, for instance, the state of Ohio obtained an
injunction ordering the debtor to clean up a hazardous
waste site. Ohio v. Kovacs, 469 U.S. 274 (1985). When the
debtor failed to comply with the injunction, a receiver was
appointed to take possession of the debtor’s property and
the injunction. The debtor filed for bankruptcy before the
cleanup was completed. The question before this Court
was whether the obligation of the debtor under the injunc-
tion was a “debt” or “liability on a claim” under the Bank-
ruptcy Code. Id. at 276-77. Affirming the holdings of the
lower courts, this Court held that because the debtor had
been dispossessed of the property and the only thing that
Ohio sought from him was the money to defray cleanup
costs, the cleanup order had essentially been converted
into a monetary obligation. Jd. at 282-83. Accordingly, this
16
Court held, the injunctive order was a “claim” that was
dischargeable in bankruptcy. Id.
In sum, Petitioner’s attempt to fashion a “split” of
authority between Continental II and decisions of this
Court and the Fifth Circuit is nothing more than an
attempt to reargue its 1997 petition. That petition did not
warrant review by this Court then, nor should it now.
THIS CASE IS NOT OF SUCH IMPERATIVE PUB-
LIC IMPORTANCE AS TO REQUIRE IMMEDIATE
REVIEW BY THIS COURT
The Pilots also seek to invoke the jurisdiction of this
Court by claiming that the case is of such imperative
public importance as to justify immediate determination
by this Court. Tk< jos have not shown, nor can they,
that this case meets that standard.
In their zealousness to prompt this Court into action,
the Pilots mischaracterize the holding of Continental II.
Continental II does not stand for the proposition, as the
Pilots contend, that rights under an unrejected collective
bargaining agreement are automatically reduced to a
dischargeable claim in bankruptcy. Rather, Continental II
merely interpreted Continental I, which stands for the
proposition that if you file a proof of claim in a bankruptcy
proceeding, and ask for equitable relief under a collective
bargaining agreement, your claim, in certain circum-
stances, may be treated as a “claim” in bankruptcy giving
rise to a right of payment.
The Pilots’ argument that the determination of its
claims violated section 1113 of the Bankruptcy Code is also
based on a fundamentally wrong premise. The Pilots’
17
rights under the collective bargaining agreement were
never altered or “extinguished.” The Bankruptcy Court
merely converted their request for specific performance
from an equitable remedy to a monetary remedy. No
provision or section of the collective bargaining agreement
was changed. Indeed, under the Third Circuit’s holding,
Continental remains bound to arbitrate the seniority issue
before the arbitrator in accordance with the collective
bargaining agreement.
As in their previous petition, the Pilots continue to
labor under the false belief that the Third Circuit imper-
missibly interpreted the collective bargaining agreement.
In Continental I and Continental II, the Third Circuit
interpreted the law as it applied to the LPPs, not the LPPs
themselves. On neither occasion did the court “interpret”
the labor protection provisions, as that term is used in
labor law. See Consolidated Rail Corp. v. Railway Labor
Executives Ass’n, 491 U.S. 299, 306-07 (1989) (any dispute
involving the interpretation of a collective bargaining
agreement must be submitted to and resolved by arbitra-
tion). In fact, the Continental I court expressly acknowl-
edged the distinction between interpreting the collective
bargaining agreements and interpreting how the Bank-
ruptcy Code affects the collective bargaining agreements:
We discern no inconsistency between the bank-
ruptcy court’s exercise of jurisdiction to deter-
mine the status of the bankruptcy claim and the
district court’s characterization of the issue of the
Claimant’s standing under the LPPs as a “minor”
dispute. The bankruptcy court’s ruling related
only to the manner in which the Claimants’
claims in bankruptcy would be treated if a right
to seniority integration were established. This
ruling, unlike the standing issue, does not turn
18
on an interpretation of the LPPs. (Pet. App. 71a-
72a n.8).
The Third Circuit was undoubtedly aware of the language
used by the Continental I court when it decided Continen-
tal II, and implying otherwise would be incredible.
Moreover, arguing that the Continental II court
impermissibly interpreted the labor protective provisions
takes the appellate court’s words out of context. Granted,
the Continental II court noted that instead of modifying or
rejecting the labor protection provisions, the Continental I
court interpreted them. (Pet. App. 7a). However, to isolate
that statement and allege that Continental HT must be
reviewed is misleading.
The Continental II court, similar to the court in
Continental I, interpreted and applied bankruptcy law to
the labor protective provisions. The transcript of oral
argument indicates that the Third Circuit used the word
“interpret” to describe what happens to a collective bar-
gaining agreement in a bankruptcy case:
JUDGE BARRY: Once we dispose of your
[argument under section 1113] ... your quarrel
is not whether [the collective bargaining agree-
ment] was rejected. Your quarrel was [the Conti-
nental I Court’s] interpretation of the collective
bargaining agreement.
MS FLOWE: With all due respect, your
honor, under the Railway Labor Act, this Court
didn’t have the authority to interpret that collec-
tive bargaining agreement. That is a minor dis-
pute that is reserved for an arbitrator under that
statute. Is it true that the court —
19
JUDGE BARRY: Just a minute now, are
you saying that the bankruptcy judge did not
have the authority to say that we are reducing
your claim for injunctive relief to a claim for
money damages?
In re Continental Airlines, No. 00-3505, Transcript of Oral
Argument (3d Cir. Dec. 11, 2001), at 9:23-11:8 (Resp. Pet.
28). In that exchange, the Continental II court was ad-
dressing whether the Pilots’ counsel understood the issue
before the court as being whether or not the Continental I
court correctly interpreted bankruptcy law as allowing for
the substitution of money damages for specific perform-
ance. The Third Circuit plainly was not using the word
“interpret” as a labor law term of art. While aggressive
advocacy has its place, EPMC’s argument over the Third
Circuit’s use of the word “interpret” stretches the limits of
permissible advocacy.
The Pilots’ allegation that the Third Circuit — and
especially Delaware — has developed a reputation as a
refuge for corporate debtors, which according to the Pilots
will only increase if Continental II is upheld, merits only a
cursory response. In the five years since Continental I was
decided, Continental is not aware of a single case filed in
Delaware that involved debtors seeking to rid themselves
of onerous collective bargaining agreements using the
strategy EPMC fears Continental I created. If there have
been such cases, EPMC did not cite them in its Petition.
EPMC also relies on a law review article that purports
to disparage the effectiveness of the Delaware and New
York Bankruptcy Courts. LoPucki, L. and Kalin, S., The
Failure of Public Company Bankruptcies in Delaware and
New York: Empirical Evidence of a “Race to the Bottom”,
54 Vand. L. Rev. 231 (2001). Not surprisingly, for every
20
one-sided article that is published, there is always an
article that takes a different position. This case is no
different. For instance, the law review that published
LoPucki and Kalin’s article published an article at the
same time that was complimentary to the Delaware
Bankruptcy Court. Skeel, D., What’s So Bad About Dela-
ware?, 54 Vand. L. Rev. 309 (2001). Regardless of which
article may be more accurate, neither bears upon the
Third Circuit’s interpretation of bankruptcy law relating
to collective bargaining agreements.
Finally, the Pilots provide this Court with a “simple
example” to illustrate the effect of the decisions below. The
example they use, however, is inapposite to the facts in the
case at bar. The Pilots, for instance, assert that this case
will allow reorganizing debtors to rid themselves of highly
paid employees by refusing to reinstate employees in
compliance with seniority provisions of a labor agreement.
Petition at 25. In this case, however, the unique facts
involve claims that were filed by former Eastern Pilots
alleging that they should be instated, not reinstated.
Moreover, Continental’s relationship with the Pilots
derives from a collective bargaining agreement between
the Pilots and Eastern, not between Continental and the
Pilots. That agreement, moreover, has no longevity in the
lives of Continental and the Pilots after the question
regarding whether or not Continental merged with East-
ern is answered. This unique set of facts is unlikely to be
often repeated.
S
21
CONCLUSION
For the foregoing reasons, Continental respectfully
requests that the Petition for a Writ of Certiorari be
denied.
Respectfully Submitted,
YOUNG CONAWAY STARGATT
& TAYLOR, LLP
JAMES L. PATTON; JR.
Counsel of Record
ROBERT S. BRADY
ScoTTtTA. HOLT _
TimoTuy E. YENGKEEK
The Brandywine Building,
17th Floor
1000 West Street
Wilmington, Delaware 19801
P.O. Box 391
Wilmington, Delaware 19899-0391
(302) 571-6600
Counsel for Respondent
Dated: August 9, 2000
No.
—————— esse
In The
Supreme Court of the United States
October Term, 1997
Vv
IN RE: CONTINENTAL AIRLINES,
Debtor,
LPP CLAIMANTS,
Petitioners,
against
CONTINENTAL AIRLINES,
Respondents.
2
7
On Petition For Writ Of Certiorari
To The United States Court Of Appeals
For The Third Circuit
Vv
PETITION FOR WRIT OF CERTIORARI
MYLES J. TRALINS
Counsel of Record
Suite 3310 One Biscayne Tower
2, South Biscayne Boulevard
Miami, Florida 33131
(305) 374-3300
Counsel for Petitioners
RICHARD M. GALE
Suite 3310 One Biscayne Tower
2, South Biscayne Boulevard
Miami, Florida 33131
(305) 374-3300
Co-Counsel for Petitioners
ees
App. 2
QUESTION PRESENTED FOR REVIEW
Whether The Third Circuit’s Opinion Which Authorizes
The Debtor To Unilaterally Alter Or Terminate The Labor
Protective Provisions Of A Collective Bargaining Agree-
ment Under Circumstances Where 11 U.S.C. § 1113 Was
Not Complied With Violates The Mandate Of Congress
And Is In Direct Conflict With Decisions Of The Second
And Sixth Circuit Courts Of Appeal.
LIST OF ALL PARTIES TO THE PROCEEDING
IN THE COURT BELOW
LPP Claimants, Petitioners
The names of the individual LPP Claimants are listed
in Appendix F.
Continental Airlines, Debtor
Effective Date Committee
Honorable John Stonitsch, Trustee
TABLE OF CONTENTS
Page
QUESTION PRESENTED FOR REVIEW................ i
PARTIES TO THE PROCEEDINGS BELOW............ ii
TABLE OF AUTHOR EE File ssscsssseeeeeees Vv
OPINIONS AND ORDERS ENTERED IN THE
CASE .......+++++00s0ses:sieaisstiasneainisinnieaniintnianannnnnnnnnnnnInEE 1
App. 3
STATUTES INVOLVED IN THE CASE.................... 2
STATEMENT OF THE CASE.............::ssssseeeeeeeeeeeeees 5
REASONS FOR GRANTING THE WRIT ................. 9
The Third Circuit’s Opinion Which Authorizes The
Debtor To Unilaterally Alter Or Terminate The
Labor Protective Provisions Of A Collective Bar-
gaining Agreement Under Circumstances Where
11 U.S.C. § 1113 Was Not Complied With Vio-
lates The Mandate Of Congress And Is In Direct
Conflict With Decisions Of The Second And Sixth
Circuit Courts Of Appeal .............c:cccsecsssereserseeneees 9
APPENDIX
Appendix A: In re Continental Airlines, 125 F.3d
120 (Sr Cir. 1997) .......c.ccccccrrcccsscscccssccosreesseessoese App. 1
Appendix B: Order Denying Petition for Rehear-
ing, rendered September 23, 1997...........:s:cssesee+ App. 43
Appendix D: L. D. Schulte Grievance, Eastern Air
Lines Pilots System Board of Adjustment, ALPA
ci coacisinnscsessassnvessevecnandsovsnssesevessevease App. 49
Appendix E: Allegheny-Mohawk Labor Protective
IE , ccxinavaunshbneniensvsasenvonessiveesnensvevesnecces App. 87
Appendix F: List of Individual LPP Claimants ... App. 100
App. 4
TABLE OF AUTHORITIES
Page
CASES
Eastern Air Lines, Inc. v. Air Line Pilots Associa-
tion, International, 861 F.2d 1546 (11th Cir.
Dil eiiccsbnciinncitindiduienecnickasmiatieuigsomabeaitavabimmainmdanseial 6, 11, 13
In re Continental Airlines, 125 F.3d 120 (8rd Cir.
| __, 5 SEO TN on AO RR NEED SERPs ah Ton NANT NSE ah 1
In re Continental Airlines, et al., No. 93-163 (D. Del.
ES Raeinteddccnsnedendiesntcelemalaneabeniaaeaadonigiameenin 1,8
In re Continental Airlines, Inc., et al., Nos. 90-932
through 90-984 (Bankr. D. Del. February 11,
UPI ns:snsdasidiasnissinlh as baxonsalemeiaaiidaneascledialaid aucbiedleiniaammemebeatas 1
In re Ionosphere Clubs, Inc., 922 F.2d 984 (2nd Cir.
PETE puncescsicunisevenicsdidanibeaeaniniaienbaceediadevs iabeianlaiidiedice passim
In re Unimet Corp., 842 F.2d 879 (6th Cir.), cert.
denied, 488 U.S. 828 (1988) ..............cccceeeseeeeeeees 10, 11, 14
L. D. Schulte Grievance, Eastern Air Lines System
Board of Adjustment, ALPA Case No.
ey sasladeibinaividadicatealladbanieninaaacaticminade 7, 11, 12, 18, 15, 17
STATUTES AND RULES
SPINS CEE TINO TID vn evceeceseviscicrceisreseessvsvnoncssennneniainess 1
Be se Ie cotnantsscdienkcdinclhiaseisiabidas taneiiiceeenas 8,14
Be rire Be caer cacconnsacdeatncaseteieerns Lintesissbiiainaisesaeboeamad iene 6
Fe se Me wibidicisscslicssiceerarseiccs eaiasdbicasecs bias paeamnia daneadaabaicenicies 7
ee I ikisickvhiosshnannenndnndtiaceiasidincesecveseiomaaas 14
0 Bs Oe Be iiniscnieartics escheat passim
Fs Ae RED cicibinssdaianissbvinctarnatebeimnaasndan 9, 10, 14
ena ae re oe
QB U.S.C. § 158(a)(1) 0... eeescccceeeeeessssneeeeessesneeeeeeeeessaneeeennnes 8
QB U.S.C. § 158(d) .......cceeessssceceeeeeessnsneeeesenssneeeeeeesseeneasenennes 8
QB U.S.C. § 1254(1) oo... ceceeeessceeeeeeeseennreeeeeenenereeeeeeesenneeeennens 1
QB U.S.C. § 1334(D) ........ cee eseeseeceeeessessneeeeeeeeeseeseesenstaeeeennees 7
OPINIONS AND ORDERS
ENTERED IN THE CASE
In re Continental airlines, 125 F.3d 120 (3rd Cir.
1997); In re Continental Airlines, Inc., et al., No. 93-163 (D.
Del. Nov. 29, 1995); In re Continental Airlines, Inc., et al.,
Nos. 90-932 through 90-984, (Bankr. D. Del. February 11,
1993) (Order Granting Motion for Partial Objection to
Allowance of Claims), (Bankr. D. Del. February 11, 1993)
(Order Granting Motion for Partial Summary Judgment),
(Bankr. D. Del. April 16, 1993) (Findings of Fact, Conclu-
sion of Law and Order Confirming the Debtors’ Revised
Second Amended Joint Plan of Reorganization)
ry
v
BASIS FOR JURISDICTION
The jurisdiction of this Court is invoked pursuant to
Section 1254(1) of Title 28, United States Code to review
by writ of certiorari the judgment and opinion of the
United States Court of Appeals for the Third Circuit dated
August 29, 1997, (App. A at page App. 1), rehearing denied
September 23, 1997, (App. B at page App. 43), affirming a
judgment of the United States District Court for the
District of Delaware entered on November 29, 1995, which
affirmed a final order of the United States Bankruptcy
Court for the District of Delaware rendered in April 16,
1993. This petition has been filed within 90 days of the
App. 6
denial of rehearing as required by Supreme Court Rule
13.1.
ry
-
STATUTES INVOLVED IN THE CASE
Section 1113 of Title 28, United States Code, which is
involved in this case, provides:
§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 cov-
ered 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 accor-
dance 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 agreement, 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 necessary modifications in the em-
ployees 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
App. 7
(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 hear-
ing provided for in subsection (d)(1), the trustee
shall meet, at reasonable times, with the author-
ized representative to confer in good faith in
attempting to reach mutually satisfactory modi-
fications 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 hear-
ing, made a proposal that fulfills the re-
quirements 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 hear-
ing. 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
Be GS a BEE Sas ge ae eee
App. 8
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 inter-
ests of justice, the court may extend such time
for ruling for such additional period as the trus-
tee and the employees’ representative may agree
to. If the court does not rule on such application
within thirty days after the date of the com-
mencement of the hearing, or within such addi-
tional 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.
(3) The court may enter such protective or-
ders, 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 po-
sition of the debtor with respect to its competi-
tors in the industry in which it is engaged.
(e) If during a period when the collective
bargaining agreement continues in effect, and if
essential to the continuation of the debtor’s busi-
ness, or in order to avoid irreparable damage to
the estate, the court, after notice and a hearing,
may authorize the trustee to implement interim
changes in the terms, conditions, wages, benefits,
or work rules provided by a collective bargaining
agreement. Any hearing under this paragraph
shall be scheduled in accordance with the needs
of the trustee. The implementation of such
——App. 9
interim changes shall not render the application
for rejection moot.
(f) No provision of this title shall be con-
strued to permit a trustee to unilaterally termi-
nate or alter any provisions of a collective
bargaining agreement prior to compliance with
the provisions of this section..
2
Vv
STATEMENT OF THE CASE
On February 23, 1986, Eastern Air Lines and its
pilots’ union ratified a collective bargaining agreement.
(App. A at page App. 5.)
The collective bargaining agreement included sections
2(a), 3 and 13 of the Allegheny-Mohawk Labor Protective
Provisions (LPPs). (App. A at pages App. 5-6; App. E at
pages App. 87-88, App. 99.)
The LPPs provide for protection of the seniority rights
of Eastern pilots “in the event of a merger between East-
ern and another airline [] through the integration of
Eastern’s seniority list with the merging carrier’s seniority
list.” (App. A at page App. 6.)
Texas Air Corporation, the parent of Continental,
acquired Eastern on February 24, 1986. (App. A at pages
App. 5-6.)
The union, on the basis that Texas Air’s acquisition
constitutes a merger within the meaning of the LPPs,
requested a meeting with Eastern, Continental and Texas
Air to integrate Eastern and Continental’s seniority lists.
(App. A at page App. 6.)
App. 10
Eastern and Continental refused to meet. (App. A at
page App. 7.)
The union initiated arbitration proceedings before the
National Mediation Board to compel Eastern and
Continental to integrate their seniority lists because of the
carriers’ merger. (App. A at page App. 7.)
Eastern filed bankruptcy in March, 1989, and refused,
with the approval of the bankruptcy court, to submit to the
National Mediation Board arbitration, relying on the
automatic stay provision of the Bankruptcy Code, 11
U.S.C. § 362. (App. A at page App. 7.)
The union appealed, the district court reversed and
the Second Circuit Court of Appeals affirmed in Jn re
Ionosphere Clubs, Inc., 922 F.2d 984, 989 (2nd Cir. 1990),
ordering Eastern to arbitration and holding that “other
provisions of the Bankruptcy Code are inoperable to the
extent that they allow a debtor to bypass the requirements
of section 1113.”
In addition to Eastern’s refusal to arbitrate, the
airline and the union disputed the substantive meaning of
a handwritten portion of the collective bargaining agree-
ment which included the LPPs.
Unable to reach agreement, the union “filed a griev-
ance with the Eastern Air Lines Pilots System Board of
Adjustment, the arbitral panel responsible under the RLA
[sic: Railway Labor Act] for adjudicating disputes arising
out of the labor contracts between Eastern and its pilots.”
Eastern Air Lines, Inc. v. Air Line Pilots Association,
International, 861 F.2d 1546, 1548 (11th Cir. 1988).
Following litigation initiated by the airline which
sought to avoid the arbitration, the Eleventh Circuit Court
App. 11
of Appeals directed that “The SBA [sic: System Board of
Adj istment] will be charged with determining the con-
tours of the disputed provisions.” Jd. at 1555.
Subsequently, the System Board ruled that monetary
damages in lieu of jobs was not a remedy under the collec-
tive bargaining agreement, that “the heart” of the labor
protective provisions was seniority integration and that
“the board should not issue any award ... which is not
definitely intended and calculated to recognize meaningful
LPP protection for pilots as a matter of contractual right
under the February 23, Agreement.” L. D. Schulte Griev-
ance, Eastern Air Lines System Board of Adjustment,
ALPA Case No. 1-86 (App. D at page App. 82.)
The LPP arbitration proceedings commenced, however
now Continental, which had filed Chapter 11 bankruptcy
proceedings, advised the arbitrator, after the Second
Circuit ruled on the identical issue asserted by Eastern,
that it would not participate because of the automatic stay
provision. (App. A at page App. 8.)
The arbitrator rejected Continental’s position and, in
August, 1992, issued a decision based upon the Second
Circuit’s ruling in In re Ionosphere Clubs, Inc., 922 F.2d
984, that he had jurisdiction. (App. A at pages App. 8-9.)
This action subsequently commenced as an adversary
proceeding pursuant to 11 U.S.C. §502, 28 U.S.C.
§ 1334(b), from a civil proceeding arising under the Bank-
ruptcy Code, and arising in and related to Continental
Airlines’ Chapter 11 proceedings, wherein Continental
sought to avoid its duty to arbitrate the LPP claims. (App.
A at page App. 9.)
App. 12
On April 16, 1993, the Delaware bankruptcy judge
entered an order confirming Continental’s Joint Second
Plan of Reorganization permanently enjoining any arbitra-
tion involving the LPPs, (App. A at page App. 38), deter-
mining that “the equitable remedy of seniority integration
constituted a ‘claim’ within the meaning of § 101(5) of the
bankruptcy code” and that “the remedy could be converted
to an award of money damages” as a “general, discharge-
able, unsecured claim that was entitled to no administra-
tive priority.” (App. A at page App. 11.)
The LPP claimants appealed to the District Court
pursuant to 28 U.S.C. § 158(a)(1) which reversed the
injunction and required Continental but affirmed the
rendition of the LPP claim into money, opining that “the
right to arbitrate the LPP dispute may be of limited
practicable utility to the LPP Claimants. Any award that
might be granted by the arbitrator would be an unsecured
pre-petition claim and may come after the assets of the
bankruptcy estate have been wholly depleted.” (Excerpt
from In re Continental Airlines, et al., No. 93-163 (D. Del.
Nov. 29, 1995); (App. C at pages App. 47-48, n. 31.)
The Petitioners then appealed to the Third Circuit
pursuant to 28 U.S.C. § 158(d), which issued its judgment
and opinion August 29, 1997, affirming the district court
“in all respects.” (App. A at page App. 42.) Rehearing was
denied September 23, 1997. (App. B at page App. 43.)
,
vy
App. 13
REASONS FOR GRANTING THE WRIT
The Third Circuit’s Opinion Which Authorizes The
Debtor To Unilaterally Alter Or Terminate The
Labor Protective Provisions Of A Collective Bar-
gaining Agreement Under Circumstances Where
11 U.S.C. § 1118 Was Not Complied With Violates
The Mandate Of Congress And Is In Direct Con-
flict With Decisions Of The Second And Sixth
Circuit Courts Of Appeal
The Third Circuit’s decision requires review as a
matter of great importance as it directly violates the
Congressional mandate of 11 U.S.C. Section 1113(f)
(1988):
No provision of [the Bankruptcy Code] shall
be construed to permit a trustee to unilat-
erally terminate or alter any provisions of a
collective bargaining agreement prior to
compliance with the provisions of [section
1113).
Under circumstances where the Third Circuit recog-
nized that “Continental’s failure to reject the collective
bargaining agreement consistent with the mandate of
section 1113 of the Code renders the injunction [prevent-
ing Continental from being required to participate in
National Mediation Board labor arbitration proceedings
regarding enforcement of the labor protective provisions of
the collective bargaining agreement] invalid,” (App. A at
page App. 38), the Third Circuit nonetheless authorized
the bankruptcy court to alter and, in effect, terminate the
collective bargaining agreement by holding that “any
claim based on an award of seniority integration arising
App. 14
out of the resolution of the LPP dispute will be treated as
a claim in bankruptcy giving rise to a right of payment.”-
(App. A at page App. 36.)
By so ruling, the Third Circuit is also in direct conflict
with decisions of the Second Circuit and the Sixth Circuit
in In re Ionosphere Clubs, Inc., 922 F.2d 984 (2nd Cir.
1990)’ and In re Unimet Corp., 842 F.2d 879 (6th Cir.), cert.
denied, 488 U.S. 828 (1988).’
The Second Circuit, finding that “Section 1113 was
enacted as the legislative response to the Supreme Court’s
decision in Bildisco” which was “representative of the ill
that Congress sought to cure,” concluded:
Subsection 1113(f) evinces an intent that
other provisions of the Bankruptcy Code
are inoperable to the extent that they allow
a debtor to bypass the requirements of sec-
tion 1113.
In re Ionosphere Clubs, Inc. , 922 F.2d at 989.
‘ In re Ionosphere Clubs, Inc., 922 F.2d 984, which required
Eastern Air Lines to arbitrate whether it had been merged with
Continental Airlines and, if so, to determine how the LPP Claimants
are to be integrated into Continental’s pilot work force, is particularly
relevant as the Third Circuit’s conflicting decision concerns the
identical collective bargaining agreement, subject matter and parties.
* In In re Unimet, 842 F.3d at 885, which concludes that “Congress
intended [1113] to give broad protection to collectively bargained for
rights which are threatened by a corporate reorganization,” the Sixth
Circuit rejected arguments that another section of the Bankruptcy Code
could be utilized to reject the claim and that Section 1113 must be
narrowly interpreted.
»y EO ee ee ee ey ee ee
App. 15
Moreover,
[t]he language of the statute indicates that
Congress intended Section 1113 to be the
sole method by which a debtor could termi-
nate or modify a collective bargaining
agreement and that application of other
provisions of the Bankruptcy Code that al-
low a debtor to bypass the requirements of
Section 1113 are prohibited.
Id. at 989-990 (emphasis supplied).
Here, the Third Circuit’s decision premised on the
theory that “substitution of the equitable remedy in no
way amounts to an alteration or termination of the terms
of the collective bargaining agreement,” (App. A at page
App. 40 n. 15), is in direct conflict with the Second Cir-
cuit’s decision in Jn re Ionosphere Clubs, Inc., 922 F.2d at
989-990 and the Sixth Circuit’s decision in In re Unimet
Corp., 842 F.2d 879, 884 (6th Cir.), cert. denied, 488 U.S.
828 (1988) holding that:
Section 1113 prohibits the employer from unilat-
erally modifying any provision of the collective
bargaining agreement.
The scope of the subject collective bargaining agree-
ment was to be determined by the Eastern System Board
of Adjustments in L. D. Schulte Grievance, Eastern Air
Lines System Board of Adjustment, ALPA Case No. 1-86
(App. D commencing at page App. 49), pursuant to the
order of the Eleventh Circuit Court of Appeals in Eastern
Air Lines, Inc. v. Air Line Pilots Association, International,
861 F.2d 1546, 1555 (11th Cir. 1988).
“ALPA filed a grievance with the Eastern System
Board of Adjustments, the body established to hear and
App. 16
determine disputes concerning the collective bargaining
agreement.” In re Ionosphere Clubs, Inc. , 922 F.2d at 987.
The System Board considered Eastern’s position that
the collective bargaining agreement “provides LPP protec-
tion for pilots only as specified in Sections 3 and 13 of the
Allegheny-Mohawk LPP’s” and ALPA’s position that the
. LPP’s “incorporates the full package of Allegheny-Mohawk
LPP’s” or “all of the protections of the TWA LPP’s.” L. D
Schulte Grievance, (App. D at page App. 55.)
Included in the “full package” was Section 7 of the
LPPs which provides for “lump sum [] separation
allowance[s]” in lieu of a job. (App. E, LPP Section 7 at
page App. 94.)
In rendering its decision, the System Board elimi-
nated monetary damages as a remedy under the
LPPs in the collective bargaining agreement.
The record in this case does not justify any conclusion
“that the reference to LPP’s in the February 23 Agreement
entitles the pilots to the full package of Allegheny-
Mohawk LPP’s.” L. D. Schulte Grievance, (App. D at page
App. 72.)
Thus,
... the evidence in the present case does not
sustain ALPA’s contention that the pecuniary al-
lowances provided in the Allegheny-Mohawk
* There are 13 sections in the labor protective provisions of the
Allegheny-Mohawk LPPs (App. E). All, excepting the right to seniority
integration, the application date of benefits and the protection of jobs in
the same class, craft and field of endeavor provide for money payments.
—
App. 17
LPP’s may be asserted, in addition to the protec-
tion of Sections 3 and 13, as a matter of contrac-
tual right by Eastern’s pilots.‘
L. D. Schulte Grievance, (App. D at page App. 79.)
Accordingly, ignoring the fact that the Eleventh
Circuit held that the System Board’s determination of the
“contours of the disputed provisions; by the SBA would be
binding on the airline and the union, Eastern Air Lines,
Inc., 861 F.2d at 1555, the Third Circuit’s ruling that
“monetary payment is an alternative for the equitable
remedy of seniority integration,” (App. A at page App. 29),
impermissibly altered the collective bargaining agreement
which expressly excluded “lump sum [] separation
allowance[s]” in lieu of a job. (App. E, LPP Section 7 at
page App. 94.) =
Moreover, in authorizing “lump sum [] separation
allowance[s],” id., in lieu of jobs by holding that “the right
to seniority integration gives rise to a ‘right of payment’
such that the remedy constitutes a ‘claim’ dischargeable in
bankruptcy” (App. A at page App. 36), the Third Circuit
has violated the directive of Congress which prohibits
application of “other provisions of the Bankruptcy
Code” in order to “allow a debtor to bypass the
requirements of Section 1113.” In re Ionosphere Clubs,
Inc., 922 F.2d at 990.
* The Third Circuit mistakenly relies on section 1 of the LPPs to
conclude that “monetary damages is consistent with the articulated
scope and purpose and is therefore appropriate.” Section 1 - and
monetary damages — pursuant to the System Board decision are not
part of the subject collective bargaining agreement. (App. A at page
App. 28 n. 12).
App. 18
Accordingly, the Third Circuit’s express reliance on 11
U.S.C. § 101(5) to alter the right to seniority integration
provided for in the collective bargaining agreement into a
“claim” which “gives rise to a right of payment” (App. A at
page App. 25), directly conflicts with the Second Circuit’s
holding in In re Ionosphere Clubs, Inc., 922 F.2d at 989,
that “Subsection 1113(f) evinces an intent that other
provisions of the Bankruptcy Code are inoperable to
the extent that they allow a debtor to bypass the
requirements of section 1113.”
The decision likewise conflicts with the Sixth Circuit’s
determination in In re Unimet Corp., 842 F.2d at 884, that
Section 1113 does not yield to 11 U.S.C. §503(b) for
purposes of determining whether qualification as an
administrative expense is necessary for the union to
prevail.
... Section 1113 unequivocally prohibits the em-
ployer from unilaterally modifying any provision
of the collective bargaining agreement. Accord-
ingly, we hold that Unimet cannot escape its ob-
ligations in this regard merely because the
requirements of section 503 have not been satis-
fied.
Indeed, the effect of the Third Circuit’s ruling is to
impermissibly eviscerate the collective bargaining agree-
ment.
The System Board held that “Sections 3 and 13 are
the heart of the Allegheny-Mohawk LPP’s because they
control seniority:”
... even without the pecuniary allowances,
as desirable as they may be, the protection
of seniority integration itself by application
App. 19
of Sections 3 and 13 is of such critical im-
portance that this without more does constt-
tute meaningful protection under the
_ February 23 Agreement.
L. D. Schulte Grievance, (App. D at page App. 79 (empha-
sis supplied).)
Accordingly, the System Board concluded that it
“should not issue any award in this case which is not
definitely intended and calculated to recognize meaningful
LPP protection for pilots as a matter of contractual right
under the February 23 Agreement.” L. D. Schulte Griev-
ance, (App. D at page App. 82.)
The Third Circuit’s ruling, “in the absence of Conti-
nental’s compliance with the requirements to reject the
collective bargaining agreement” (App. A at page App. 40),
which terminates the critically important meaningful
protection of seniority integration provided under the
express terms of the collective bargaining agreement and
substitutes a general unsecured pre-petition claim in
bankruptcy, impermissibly acts to “nullify effectively the
arbitration clause in the collective bargaining agreement
and would substitute the court’s judgment for that of the
arbitrator.” In re Ionosphere Clubs, Inc., 922 F.2d at 992.
Finally, the Third Circuit, opining as a finder of fact,
justifies its approval of the unilateral alteration of the
collective bargaining agreement because seniority integra-
tion “has the potential to create an environment rife with
hostility and low employee morale, not to mention a
detrimental effect on employer-employee relations” which
“circumstances indicate that seniority integration would
not be a feasible remedy and that an alternative remedy of
App. 20
monetary damages would be appropriate.” (App. A at
pages App. 35-36).
First, Continental Airlines contracted for and agreed
to the LPPs which the Third Circuit worries over. More-
over, Continental elected not to alter or terminate the
collective bargaining agreement providing for seniority
integration under Section 1113 and, indeed, contracted for
and is bound by the LPPs irrespective of the Third Cir-
cuit’s perceptions about what may or may not happen if
Continental is required to honor its contract. As the
decision notes:
Throughout this litigation, Continental has
premised its arguments on the assumption that
it is bound by the LPPs and has a duty to arbi-
trate the LPP dispute ... In light of the over-
whelming advantage that continental
derived from maintaining the position that
is was bound by the collective bargaining
agreement, and thus, had a duty to arbitrate
the LPP dispute, we refuse to allow Conti-
nental to repudiate that representation and
return to the district court to litigate the issue
whether it is bound by the agreement.
(App. A at page App. 41 (emphasis supplied).)
Section 1113 simply does not allow the court, sua
sponte, to strike out Continental’s -contractual obligation
on the supposition that strife might result if the agree-
ment were enforced. ‘
Second, as the Second Circuit observed in Jn re Iono-
sphere Clubs, Inc., 922 F.2d at 992, in direct conflict with
the Third Circuit’s worry: “if the Trustee believes that
the threat of slowdowns or other disturbance is
Sos ile be Phe in eta th Vint AOA! als Nhe oe Carte nt Rae
App. 21
such that he wishes to undo the arbitration award,
he has open to him either a return to the arbitrator
or a rejection of the contract in the manner con-
gress prescribed in 11 U.S.C. Section 1113.” Congress
provided a remedy for the Third Circuit’s concern; one
which Continental elected not to avail itself of when it did
not seek to alter or terminate the collective bargaining
agreement.
Third, “the debtor in possession or trustee has
the contractual duty to adhere to the substantive
provisions of the agreement ... ” In re Ionosphere
Clubs, Inc., 922 F.2d at 992.
The Third Circuit’s ruling authorizes Continental to
ignore the “substantive provisions of the agreement” by
removing “the heart of the Ailegheny-Mohawk LPP’s”
which “control seniority” from the collective bargaining
agreement. L. D. Schulte Grievance, (App. D at page App.
80.)
Finally, the impact of the Third Circuit’s ruling is the
impermissible termination of the collective bargaining
agreement.
The right to seniority integration through enforce-
ment of the labor protective provisions of the collective
bargaining agreement accepted by Continental Airlines
will provide jobs to pilots whose airline merged with
Continental.
Transforming the jobs protected as a result of the
merger through operation of the terms of the collective
bargaining agreement into a money damages claim in the
bankruptcy effectively destroys the collective bargaining
App. 22
agreement itself as no employees covered by the agree-
ment will have the right to a job. As such, the decision
requires reversal:
“We conclude, from the language of the stat-
ute, statements made by the sponsors of the
legislation, and the context in which it was
enacted, that Congress intended that a
collective bargaining agreement remain in
effect and that the collective bargaining
process continue after the filing of a bank-
ruptcy petition unless and until the debtor
complies with the provisions of section
1113.”
In re Ionosphere Clubs, Inc., 922 F.2d at 992.
The Third Circuit’s decision in violation of the man-
date of Congress and in clear conflict with the rulings of
the Second and Sixth Circuits, operates to unilaterally
terminate the collective bargaining process. Accordingly,
this Court should grant certiorari.
Dated: December 19, 1997
Respectfully submitted,
MYLES J. TRALINS
Suite 3310 One Biscayne Tower
Miami, Florida 33131
(305) 374-3300
Counsel for Petitioner
RICHARD M. GALE
Suite 3310 One Biscayne Tower
Miami, Florida 33131
(305) 374-3300
Co-Counsel for Petitioner
SRO QM NE el ea
FRI A SE BRI BE FEF AR et BUS eRe Se bh beh AE Ae A. Bae
APPENDIX A
In re Continental Airlines, 125 F.3d 120 (3rd Cir. 1997)
App. 23
[1] No. 00-3505
IN RE: CONTINENTAL AIRLINES,
Debtor,,.
EASTERN PILOTS MERGER COMMITTEE,
Appellant
Vv
CONTINENTAL AIRLINES
PATRICIA A. STALANO, Trustee
[2] MS. FLOWE: If it please the court, my name
is Carol Connor Flowe and I represent the appellant, the
Eastern Pilots Merger Committee, and I would like to
reserve three minutes for rebuttal, please.
THE COURT: Granted.
MS. FLOWE: If the lower court and Continental
are correct in their interpretation of Judge Lewis’s 1998
decision, which your honor just referred to implicitly as
Centinental I, that decision is contrary to the law under
both sections 11-13 and 365 of the Bankruptcy Code.
Now we acknowledge that Judge Lewis’s decision is
ambiguous, but we believe that it reasonably lends itself to
an interpretation that is consistent with those statutory
provisions.
THE COURT: Let me move beyond for a mo-
ment those sections that you have just identified and
throw out for you what I see to be the issue in the case.
We will assume for argument purposes that the LLPs
continue to bind Continental [3] as you argue.
App. 24
In what way has Continental’s post-confirmation
conduct violated those provisions in ways that its pre-
confirmation conduct did not?
MS. FLOWE: Your honor, I don’t believe that
they violated it in any different way. They have continued
to refuse to comply with those provisions.
THE COURT: Can I ask a stupid question but
for my own enlightenment. Where are these pilots now?
Where have they been since 1993? Are they working for
any airline? What are they doing?
MS. FLOWE: In a great number of places, your
honor. Some of them are flying for other carriers. Perhaps
even a few of them are even flying for Continental.
THE COURT: But not being paid as much as
they think they are entitled to because of seniority?
MS. FLOWE: That’s correct.
THE COURT: When did that claim arise? The
right to integrate the seniority [4] roster occurred when?
MS. FLOWE: The pilots’ position has been that
the merger, if you will, that was necessary to trigger these
rights occurred over a period of time, from. the time that
Texas Air acquired Eastern in 1986 and going forward
over the next several years.
THE COURT: A merger is a merger.
THE COURT: When did the merger occur?
THE COURT: And there has been no finding of
a merger yet.
App. 25
MS. FLOWE: That is correct and that is an
issue that will be —
THE COURT: Assuming a merger, it had to
have been pre-petition.
MS. FLOWE: It would have been pre-petition.
Most of the events would have occurred pre-petition, that’s
correct, your honor.
THE COURT: The merger. The merger. Without
a merger, there are no LLPs to worry about. The merger
occurred pre-petition.
MS. FLOWE: The provision actually [5] refers to
merger, combination or several other synonymous kinds of
words.
THE COURT: Whatever.
MS. FLOWE: Again, the decision has always
been that those things took place, that there were a
number of events that took place, that Texas Air basically
cherry-picked the valuable assets of Eastern Airlines for
the benefit of Continental.
That took place over some period of time and that
those events taken together constituted the necessary
triggering event to make those LLPs applicable.
THE COURT: What happened - I return to my
first question, what happened postconfirmation? What
was the new breach, for lack of a better phrase?
MS. FLOWE: Judge Barry, we believe that this
is a continuing obligation, that each and every day, as
Arbitrator Alcurry said, that nothing new happened. It is the
same thing that happened every single day prepetition, and
App. 26
every single day pre-postpetition and every single day [6]
postconfirmation that Continental refused to comply.
THE COURT: A breach of the collective bargain-
ing agreement, right?
MS. FLOWE: Yes, your honor.
THE COURT: Isn’t there a limitations period for
asserting a claim based on a breach of a CBA?
MS. FLOWE: There may well be a limitations
period applicable, but because this matter was initiated
right at the very outset when Continental and Eastern
first refused to comply, the litigation has been pending
ever since that time.
THE COURT: As I understand it, this collective
bargaining agreement is still in effect, it flowed through
that. But that gives rise to a right to arbitrate, right?
MS. FLOWE: That’s correct.
THE COURT: And your people have declined to
arbitrate; am I incorrect on that?
MS. FLOWE: They haven’t declined to arbitrate,
your honor. There was a dispute [7] that arose as to what
was at issue in that arbitration, and so they put off arbi-
tration while they tried to clarify that matter.
THE COURT: You mean when they went to a
New Jersey court to get a declaratory judgement instead of
arbitrating?
MS. FLOWE: Yes, that is correct, your honor.
App. 27
THE COURT: But after February 2000, you
weren't satisfied with the results on your pre-confirmation
claim for seniority integration, and in February of 2000,
you withdrew that claim and now seek the same seniority
integration postconfirmation.
But you had your cure for that in the bankruptcy
proceeding, and aren’t you looking for a second remedy for
the same breach?
MS. FLOWE: Our position, Judge Barry, is that
all that was at issue in that bankruptcy proceeding, and in
the 1997 decision of this court, was the bankruptcy claims,
the claims for the breach of that, of those labor protective
provisions, up [8] until the date of confirmation.
THE COURT: Ms. Flowe, isn’t that position
you’re assuming now somewhat different from the position
that your clients took in Continental I?
And we have the questioning of counsel by the panel
Jack Michelle, Judge Michelle, and even in your petition
for certiorari to the United States Supreme Court,
throughout your position, you were not limiting yourself to
pre-petition. You said over and over again that this was a
basic career emolument they sought.
How do you respond to that?
MS. FLOWE: Your honor, there certainly are
statements that could be construed that way that were
made by our client’s former attorneys. We can only specu-
late as to what they had mind, but our best speculation —
THE COURT: What they had in mind was really
adjudicated by our court in the argument, in the dialogue,
i
App. 28
and the briefs and your oral argument and your petition
for [9] certiorari.
MS. FLOWE: Those documents did also ac-
knowledge the ambiguities in the decision. We can only
assume that they were trying to clarify that decision in a
way that the pilots subsequently tried to do that.
THE COURT: While I have you, your argument
that there wasn’t a rejection of the contract, suppose we
hold that, yes, there wasn’t a rejection, but that all that
the previous decision of our court was was an interpreta-
tion of a collective bargaining agreement and that the
collective bargaining is still viable.
Once we dispose of your, what I considered a major
argument in your brief about Continental did not follow
the statutory requirements of rejection, once we say,
rejection is irrelevant here because there wasn’t any
rejection, your quarrel is not whether it was rejected. Your
quarrel was the interpretation of the collective bargaining
agreement.
[10] MS. FLOWE: With all due respect, your
honor, under the Railway Labor Act, this court didn’t have
the authority to interpret that collective bargaining
agreement. That is a minor dispute that is reserved for an
arbitrator under that statute.
It is true that the court —
THE COURT: Just a minute now, are you
saying that the bankruptcy judge did not have the author-
ity to say that we are reducing your claim for injective
relief to a claim for money damages?
App. 29
MS. FLOWE: Judge Lewis seemed to say other-
wise in the former decision. We do think that his decision
was limited to the bankruptcy claims, the treatment of
claims in bankruptcy.
THE COURT: Just a minute please, this is
important. I want you to answer my question.
MS. FLOWE: Yes.
THE COURT: Do you understand the question?
MS. FLOWE: Repeat it for me.
[11] THE COURT: Are you saying that the
bankruptcy judge did not have the power to say, I am
reducing your claims for injunctive relief to claims for
money damages to be determined by an arbitrator?
Are you saying that the bankruptcy judges don’t have
that power?
MS. FLOWE: The bankruptcy judge did not
have the power to dictate —
THE COURT: Where do you say that in your
brief?
MS. FLOWE: I don’t believe we said that in our
brief because even the 1997 decision of this court —
THE COURT: My follow-up question is, you just
made that statement that the court had no power under
the Railway Labor Act.
MS. FLOWE: To interpret the collective bargain-
ing agreement, which I don’t think that Judge Lewis was
purporting to do in 1997. Rather I think what he was saying
was that once an arbitrator had ruled on an appropriate
App. 30
remedy which was within the province of the arbitrator,
that a [12] bankruptcy judge could appropriately take that
award and remedy and convert it into a money damages
claim if a claim were appropriate in the bankruptcy.
THE COURT: If the bankruptcy judge had
determined in advance that a money damage claim would
be appropriate, and Judge Lewis said that that was correct
and that the arbitrator could then award if there were to
be a money award. I think you have it reversed.
MS. FLOWE: I didn’t read it that way, your
honor, but I will certainly accept that.
As we have argued, however, because if the decision is
interpreted to eliminate these pilots postconfirmation
rights, it is so clearly inconsistent with section 11-13 and
section 365.
THE COURT: Let’s go back to my first question.
Let’s assume, and you are talking about 11-13, let’s
assume that the LLPs pass through I am willing to as-
sume that for purposes of argument. What I don’t [13]
understand though is, how there can be two remedies for
the same breach.
Let me give you a hypothetical and you tell me how
this case differs from my hypothetical.
A and B have a contract to plow B’s driveway when it
snows. One evening it snows. The next morning A does not
plow B’s driveway. B files suit for breach of contract and
looks for a specific perforrhance. The same day the court
decides no specific performance. I am going to give you
money damages. B has been made whole and the contract
between A and B is still effective.
App. 31
But that afternoon, B’s driveway is still covered with
snow and he goes back into court after A refuse to plow tiie
driveway, files another action for breach, that action is
barred. It hasn’t snowed again.
The snow on the ground is the same snow from earlier
in the day. The condition precedent to performance has not
been [14] satisfied.
Where has there been any satisfaction of a condition
precedent postconfirmation?
Has there been another merger of Continental?
THE COURT: It hasn’t snowed again after
confirmation.
MS. FLOWE: In your honors example, the
terms of the contract were such was that there was a
singular obligation.
As your honor described in the hypothetical, there was
not a continuing obligation, a new obligation each and
every day the contract was in place.
THE COURT: Where was there a continuing
obligation here? There is an obligation, if merger or the
other requisites too, consistent with fairness, do a senior-
ity integration.
MS. FLOWE: There are two places where this
comes from in our argument; number one, as Arbitrator
Alcurry in interpreting this very provision of this collective
bargaining agreement stated explicitly that it was a [15]
continuing obligation and that each day that Continental
or Eastern. in that case, failed to comply with it, it gave
App. 32
rise to a new grievance on the part of the pilots, that is
number one.
And number two, it is the only way to give section 11-
13 any effect if one didn’t —
THE COURT: You keep slipping back into 11-
13. I will essume that 11-13 applies and that provision,
the LLPs have passed through, assuming a merger. You
don’t need 11-13. It is irrelevant. We have the LLP provi-
sion.
THE COURT: They couldn’t change the wage
scale because they didn’t comply with 11-13 so that there
is some benefit to the pass-through.
THE COURT: I made that point earlier that I
think that this whole argument of rejection is irrelevant
here because the basic, I think the basic question is
whether the claim you are making now was subsumed in
the claim you made in your appeal from the [16] reorgani-
zation plan, which this court adjudicated, and the question
is, did that diffusion take care of pre and postconfirmation
activity.
MS. FLOWE: And your honor, we think it could
not for the reasons that once Continental survived its plan
of reorganization without having rejected the collective
bargaining agreement, it assumed it by operation of law.
Once it assumed it, it assumed all of it.
THE COURT: Say that again. I missed that.
MS. FLOWE: Once confirmation took place
without a rejection, they could no longer reject. And under
this court’s authority, they therefore assumed by operation
App. 33
of law, and the Supreme Court has said, when you assume
an executory contract, you have to assume all of it.
At that point there is no longer a claim for a breach.
The claim disappears. There is either, in the case of an
actual [17] assumption, a right to a cure for that violation
of the contract or, if instead you have the view of some of
the other courts of appeals that it doesn’t get actually
assumed but it actually rides through, then the claim in
bankruptcy disappears altogether.
The creditor in the matter of the bankruptcy law no
longer has a claim at that juncture.
THE COURT: I understand your position.
THE COURT: I have one final question. And we
will hear you again in rebuttal.
You say in your reply brief that there should be
prompt arbitration so that it could be determined whether
the “requisite events” have occurred to require seniority
integration.
What are the requisite events that the arbitrators
should look for?
MS. FLOWE: That was a reference to these
various merger, combination and so forth terms that are
used in the provision [18] to see whether or not there is
one of those things.
THE COURT: Thank you.
MR. PATTON: May I please the court, Jim
Patton for the appellee Continental.
App. 34
Your honor, I am here principally to answer your
questions, and I had planned to begin with what the
appellants believed was their strongest argument and
work through that, and that’s the argument that your
honors did not want to hear about. But if I may, let me
focus —
THE COURT: If we only listened to arguments
that we wanted to hear, we would hear very few argu-
ments.
MR. PATTON: At the outset, let me just state
that from our point of view we think that the opinion is
anything but ambiguous.
And what this really turns on is a question of whether
or not there is a basis hear for reconsideration. But the
appellants’ strongest argument they have asserted in their
papers, and as counsel [19] argued here, is that in their
view the decision of the court’s below on this appeal so
misread the opinion as to make it inconsistent with the
bankruptcy code provisions 11-13 and section 365,and that
therefore that reading was absurd.
I want to take just a minute to address that argument
and explain why in our view the opinions were, in fact,
consistent with the reading of this court’s earlier decision
in Continental I, and, in fact, is consistent with this court’s
earlier decisions in, for example, Roth.
The EMPC’s argument essentially depends on three
steps all being satisfied. First, the EMPC contends that a
failure to reject under section 11-3 is the same as an
assumption and that there is no other option; that is, a
failure to reject is of necessity an assumption.
App. 35
Step two, that assumption is, of necessity, an assump-
tion that must play by the rules of section 365 of the
bankruptcy code and thet there is no other option.
[20] And number three, that under the rules of section
365, the obligations to cure pre-petition default are of
necessity obligations of the reorganized debtor.
There are flaws with each of those assumptions. I will
state this at the outset that they do have a case that they
are somewhat in the camp, and that is the venture re-
sources case out of the Fourth Circuit. I will get to that in
just a moment.
This is the best case they have got. It was decided
after this court’s earlier decision, and I will point out that
it was roundly criticized in the Family Snacks case out of
the Eighth Circuit Bankruptcy Appellant Panel for, in the
view of that appellant panel, misreading section 365 of the
bankruptcy code and how it works.
So let’s focus first on what the law is in this circuit
because I think that’s the correct starting place for analy-
sis.
Prior to this court’s decision in Continental I, this
court decided Roth. In [21] Roth the court faced a collec-
tive bargaining agreement, contemplated what happens
when section 11-13 is not complied with, said that that is
an assumption, but went on to describe the consequences
of that event in a way that made it clear that that assump-
tion was not an assumption that led to the requirement
that section 365 be complied with.
In fact, what the court concluded was that the bank-
ruptcy court below is perfectly correct in deciding how to
App. 36
treat specific claims arising in connection with prebank-
ruptcy breaches under the collective bargaining agreement
and in deciding that some of those claims would be unse-
cured claims, general unsecured claims, and some would
be priority claims and some would be administrative
claims.
365, were it to be complied with, would require that
all of those claims be cured and that all of those faults be
cured and be converted into administrative claims.
[22] So Roth states a position and a result that is
inconsistent with the proposition that an assumption or a
failure to reject under section 11-13 of necessity leads to a
section 375 result.
Roth, by the way, is not alone. In the Family Snacks
case, which is the most recent case to wrestle with this
issue, the court, in that case the Eighth Circuit Bank-
ruptcy Appellant Panel, took a look at the state of the law
and observed there had been something of a split that has
developed in the circuits about what happens when you
have a collective bargaining agreement that is neither
assumed or rejected, but simply exists after the bank-
ruptcy case.
And in particular, what happens to the claims associ-
ated with prebankruptcy defaults under that collective
bargaining agreement. And the Family Snacks court
observed that the prebankruptcy default that arose under
the not assumed, not rejected collective bargaining agree-
ment are treated by the majority of the courts as conven-
tional [23] claims just the way that Roth did.
In fact, Family Snacks, as I mentioned, talks about
Roth and explains that the Roth case, when it talks about
App. 37
a collective bargaining agreement being assumed if it was
not rejected under 11-13, was not talking about a 365
assumption. And the Family Snacks case points out that
the Roth decision and the other courts’ decisions that are
in that same family of cases looked independently at the
claims arising under the collective bargaining agreement,
addressed those claims as prebankruptcy claims just as
this court did in Continental I.
We had a prebankruptcy default arguably. This court
concluded that gave rise to a claim because the bank-
ruptcy court reduced the injunctive rights to monetary
damages and addressed how that claim should be treated.
THE COURT: The problem that I am wrestling
with is, where there has already been a prebankruptcy
cure, what is the [24] relevance of all of that law?
MS. FLOWE: That’s my question too. I don't
understan’ your, I really don’t understand why you are
making that argument, counsel.
THE COURT: I think I have fallen into an
appellant’s trap.
MR. PATTON: You are correct. The Appellant
has argued —
THE COURT: I will tell you why. Because you
don’t want us to say that that collective bargaining agree-
ment was not rejected and it still rode through. You don't
want us to say that. Although it would succeed in this
particular claim, but as an aftermath of this case, you
have other reasons for our not saying that, isn’t that right?
MR. PATTON: Your honor, I think the answer
is, no, I don’t agree, and let me explain.
App. 38
THE COURT: Let’s see your position on whether
it passes through. You concede in your brief that you had a
duty to arbitrate, [25] had a duty to arbitrate preconfirma-
tion claims.
MR. PATTON: That’s correct.
THE COURT: Do you believe that there is a
duty to arbitrate postconfirmation claims, if, indeed, there
are any?
MR. PATTON: Yes. If, indeed, there are any,
yes.
THE COURT: So that it passes through if that
is true.
So why have the appellants felled a whole forest of
trees?
MR. PATTON: The question is, what is the
status of the prebankruptcy breach. That is the real
question.
THE COURT: When you say prebankruptcy, are
you talking about prepetition or preconfirmation?
MR. PATTON: Either one, both your bonor.
Because, and the reason why I started down this road, and
as your honors would describe fell into the trap, is the
appellants are creating the case for the proposition that,
was the status of this [26] situation somehow inconsistent
with the bankruptcy code and that, in fact, Roth is im-
properly decided. °
And what I wanted to emphasize is that what Conti-
nental I did is perfectly consistent and, in fact, identical
App. 39
with Roth and is perfectly consistent with the majority
view when it comes to addressing what happens to —
THE COURT: Now that you have conceded,
because I reread the brief a couple of times to see whether
you were taking a position on whether you were bound to
the CBA only through the bankruptcy proceedings, as you
would have to say you were because we said so in Conti-
nental I, or whether you were also bound postconfirma-
tion.
And you have now told me you are bound postconfir-
mation. We wouldn’t even have to deal with whether Roth
is rightly decided or whether it passed through or rode
through or whether it was an implicit assumption or is an
explicit assumption. It is all [27] irrelevant.
You agree the CBA has passed through and you are
now bound by it. So I return to my first question: where is
the new breach?
MR. PATTON: There is no new breach.
—
THE COURT: That is the question, for me
anyway. -
THE COURT: Before you get on to this, I am
going to tell you how I look at this case. I am looking at
this case in a very, with a very narrow focus. I see the
issue, did Continental I adjudicate postconfirmation
claims relating to this question of seniority.
That’s how I see the issue in this case.
Do you agree?
MR. PATTON: Yes, your honor. And the answer-
to that question is, whether or not —
ee —~
App. 40
THE COURT: I thought the thrust of your brief
was along those lines.
MR. PATTON: Yes, your honor.
[28] THE COURT: The thrust of your brief from
page 21 where you talk about what was argued before the
panel before, when you talk about the dialogue between
the court and counsel for your friends, and what was
contained in the petition for certiorari.
I thought that was a major point that you were
making.
MR. PATTON: That’s correct because the
question — taking —
THE COURT: And also the language of our
opinion in Continental I, what your friend says is ambigu-
ous.
MR. PATTON: That’s correct. I believe it is and
I believe it resolved once and for all whether or not the
pilots would be entitled to seniority integration specifically
or whether or not they are entitled to damages.
What is being argued today is, is that a “continuing
breach.” That is, that until we have in fact integrated,
there is a postconfirmation ongoing breach, and that is not
the case.
[29] This court reduced the right to seniority integra-
tion and the bankruptcy court reduced the right to senior-
ity integration to a claim. And it made it clear in its
opinion that it is an either/or. You get one remedy or
another and the claim is a substitution for specific per-
formance.
App. 41
THE COURT: I gather that in the original
bankruptcy proceedings before the plan of reorganization
was established, that there was no specific limitations of
the claim, that your friends did not say, we are only
making prepetition claims here.
MR. PATTON: That is correct. They made claims
for — in fact, they specifically made claims for future loss
associated with the integration.
THE COURT: That’s what I understand, and
my examination of the record indicates that.
THE COURT: How did the plan deal with these
claims?
MR. PATTON: The plan treated them as [30]
general unsecured claims and as a result treated them the
same as all other general unsecured claims were treated.
THE COURT: How was that?
MR. PATTON: I believe all unsecured claims
participated in distribution of the equity of the company,
in effect, the unsecured creditors became the owners of
Continental unsecured shares.
THE COURT: Got some shares of the stock.
MR. PATTON: Yes. And what’s important about
this distinction in terms of whether or not we are talking
about a continuing breach and a postconfirmation breach,
it is certainly not the case that it is our view that we are
bound to the collective bargaining agreement if the inter-
pretation is that there is a new breach everyday because;
A. that is not what this court said in the first instance —
App. 42
THE COURT: You are either bound or not
bound. Whether or not there is a new breach everyday is a
question of fact.
[31] MR. PATTON: Except, your honor, in the last
Continental decision, the Continental decision I, at the
very end there is a very interesting point of reference.
There the court makes clear that it is not going to hear
Continental’s argument about whether it is bound by the
collective bargaining agreement or whether or not 11-13
should apply because it is believed that Continental had
specifically received substantial benefit by taking a con-
trary view.
And the specific benefit that it received was that all of
these claims were trapped prepetition.
There is an interesting question. What would happen
if this court were to reconsider that earlier decision.
THE COURT: Are you trying to weasel back and
now say you are not going to really be bound. The only
reason you were held bound was because you had done the
bad things the court found you had done.
You are either bound or not bound on [32] the merits.
MR. PATTON: In my view, I am bound the way
that the Third Circuit said I am bound earlier which is I
have to arbitrate and I have to live up to the obligations
that remain under the collective bargaining agreement.
But it was very clear about what that was a trade for.
And it is the last two pages of the earlier opinion. In its
view there was something of a trade going on because
App. 43
Continental was trying to argue that there was no collec-
tive bargaining agreement, that it was not subject to 11-
13, and this court said, no, stop.
THE COURT: Ifthe court only found you bound
by the CBA as a sanction, then it wasted a lot of pages of
opinion prior to that point discussing the CBA, didn’t it?
MR. PATTON: Well, it did need to address the
specific question, and this is what most of the opinion was
focused on, how to deal with that prebankruptcy claim, is
it reducible to a claim in fact.
[33] THE COURT: If you weren’t bound by CBA,
by definition there is prebankruptcy claim.
That would have been the first issue the court would
have decided, not the last.
MR. PATTON: Conceded.
THE COURT: Is there any continuing obligation
under the collective bargaining agreement as to what was
the term of the collective bargaining agreement; is that
the same CBA that is in effect now for Continental em-
ployees?
MR. PATTON: No. The collective bargaining
agreement that we are specifically focusing on is a collec-
tive bargaining agreement between Alpha and Eastern
Airlines. And we are really focusing only on the labor
protection provisions which obligated —
THE COURT: I know that’s what you are
focusing on, but were there other provisions which if you
are bound by them, you are still bound by them?
App. 44
For example, wage scale. Are Eastern [34] employees
now working for Continental entitled to be paid according
to the Eastern contracts, right?
MR. PATTON: No. They would be integrated
into the Continental contract where a new collective
bargaining agreement would govern.
THE COURT: And being bound by it relates
only to that issue?
MR. PATTON: That’s correct. It relates to the —
THE COURT: I am not sure that I understood
your answer to Judge Fullam’s question.
This provision of incorporating seniority after a
merger, was that a separate agreement or was that a
clause in the CBA?
THE COURT: It was section 3.
MR. PATTON: I beleve [sic] it was a specific
clause of the CBA and Eastern and —
THE COURT: I go back to Judge Fullam’s
question. A collective bargaining [35] agreement is for a
specific period of time.
I believe Judge Fullam asked you when did that end. I
am not sure that I understood your answer.
MR. PATTON: With respect to the question, I
did not answer because I got off on the question of whose
collective bargaining agreement was it.
At this point, your honor, I cannot give you a date that
it ended, but Eastern is no longer in business and it is no
longer flying and I believe it is fair to say that it is not in
App. 45
existence today, but I do not have the ability to tell you
that date that it expired.
THE COURT: I understand your position, a
fallback position that you have asserted in your brief, as I
understand it. You believe that Continental is not bound
by the agreement that Eastern made.
MR. PATTON: That is correct. And that is the
issue that was addressed at the end of the court’s prior
decision in Continental I that we were not allowed to [36]
raise.
And our view is that the right to seniority integration
is a right that arose, if at all, in 1988 or 1987 and it is
trapped in our bankruptcy.
THE COURT: That is assuming someone finds
that there was a merger.
THE COURT: Correct. If anybody ever arbi-
trates anything.
MR. PATTON: That is correct as well.
That’s all that I have.
MS. FLOWE: If I may, I will first answer Judge
Fullam’s question.
Under the Railway Labor Act, collective bargaining
agreements do not still expire, they merely become
amendable. And, in fact, there is some serious question as
to whether it is even legal to have a term shown on the
face of the agreement so they just keep going and the
National Mediation Board gets involved, if necessary, to
prevent striking and so forth. So that is the answer to that
particular question.
App. 46
THE COURT: Are there specific [37] collective
bargaining agreements between — the Eastern one is the
one that you are relying on? How about Continental. They
had another one, didn’t they?
MS. FLOWE: At this point Continental does.
They have since become unionized and they do apparently
have a contract with their pilots.
To the extent that an arbitrator were to award senior-
ity integration, it would be that Continental’s collective
bargaining agreement would govern on all the other terms
and conditions of employment.
If I can just go back for just a little bit and perhaps try
to use another hypothetical to discuss this issue.
We believe that under the law of the shop, Arbitrator
Alcurry’s construction of this particular provision in the
agreement, it is equivalent to, for example, a contract that
might say that each day you owe me money.
Now it may well be that the person who owes the
money may stop paying and they file [38] for bankruptcy
and at that point they reject that agreement.
If they were to reject that agreement, the creditor
would have a claim for not just the amount of money that
has not been paid thus far, but the court would look into
the feature and would see what the term of this commit-
ment was and would take that (inaudible) payment’s
present, value it and give them a claim, at whatever
priority, probably in bankruptcy dollars for pennies on the
dollar.
However, if they don’t reject, but if they instead
assume that contract, they don’t have a claim, the creditor,
App. 47
at all. Instead, the debtor has an obligation to cure the
breach which means making those payments that they
missed and continuing to make the payments every day
postconfirmation.
In short, all we think the 1997 agreement dealt with
was the claim that would have existed for the breach up
until the date of confirmation had there not been [39] an
assumption, but once the agreement was not rejected, it
was assumed.
Briefly, one last point. If the court concludes that you
can’t interpret the 1997 decision to be limited to the
preconfirmation period, we respectfully urge that you
reconsider that decision because otherwise we believe that
that decision as interpreted decides the will of Congress
and would be a beacon for every bankrupt company to
come to the Third Circuit where they can get rid of their
collective bargaining obligations merely by breaching
them.
THE COURT: Thank you. The case was very
well argued and we will take it under advisement.
We will take a 10 minute break so that the courtroom
can be cleared and then Judge Aldisert, if you will remain
on video, we will conference the cases today.
THE COURT: Judge Barry, can we have a
transcript of the oral argument in this past Continental
case?
THE COURT: Counsel, would you speak [40] to
the clerk of the court and provide a transcript to the court.
I would ask that you split the cost, if that is agreeable
to you, to both sides.
App. 48
MR. PATTON: Very good.
MS. FLOWE: Fine.
THE COURT: The crier will close court.
COURT CRIER: This court stands adjourned
until September 13, 2001 at 10 a.m.
(End of proceedings. )
(41) CERTIFICATE
I, SHERIL FELDMAN, certify that the foregoing
transcript of proceedings in the United States Court of
Appeals Court, in the matter of Continental Airlines,
Index Number 00-3505 electronic transcription equipment
and is a true and accurate record of said proceedings.
SHERIL FELDMAN
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.