Bakery, Confectionery & Tobacco Workers International Union, Local 85 v. Kirkpatrick (In Re Kirkpatrick)

34 B.R. 767, 1983 Bankr. LEXIS 5283, 11 Bankr. Ct. Dec. (CRR) 591
CourtUnited States Bankruptcy Appellate Panel for the Ninth Circuit
DecidedOctober 7, 1983
DocketBAP No. EC 81-1399 EV As, BK No. 181-02863
StatusPublished
Cited by1 cases

This text of 34 B.R. 767 (Bakery, Confectionery & Tobacco Workers International Union, Local 85 v. Kirkpatrick (In Re Kirkpatrick)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Appellate Panel for the Ninth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Bakery, Confectionery & Tobacco Workers International Union, Local 85 v. Kirkpatrick (In Re Kirkpatrick), 34 B.R. 767, 1983 Bankr. LEXIS 5283, 11 Bankr. Ct. Dec. (CRR) 591 (bap9 1983).

Opinions

ELLIOTT, Bankruptcy Judge:

The Bakery, Confectionery and Tobacco Workers International Union, Local 85, appeals from an order approving rejection of its collective bargaining agreement with Kirkpatrick who operates a bakery in Fresno, California.

The issues, as framed by the Union, are: (1) has Kirkpatrick made a sufficient showing that the agreement was onerous and burdensome and (2) should Kirkpatrick be required to show that his rejection of the agreement was not improperly motivated.

I

On December 4,1981, Kirkpatrick and his wife filed a chapter 11 petition. The business employed approximately 23 persons at that time. The next day Kirkpatrick announced to the employees that the business would no longer be operating as a union shop. Shortly thereafter a similar announcement was delivered to the Union’s business agent. This announcement was followed up by a letter addressed to the Union dated December 12, 1981 purporting to confirm the “rejection” of the contract as of December 5 under the authority of “the option to reject all contracts, including labor” included in chapter 11. The Union had filed, a complaint with the NLRB on December 5, 1981 claiming Kirkpatrick’s actions amounted to unfair labor practices.

Kirkpatrick then filed a motion in the bankruptcy court to “confirm” the debtor in possession’s rejection of the contract. He was able to obtain an order shortening the time of notice on his motion to one day. The only justification for this shortened notice was his allegation that substantial “conflict and confusion” had arisen involving the question and that “irreparable injury would occur if the question were not resolved at the earliest possible time.”

At the hearing, the only evidence was Kirkpatrick’s testimony and financial projections prepared by him. His testimony was essentially to the effect that the only way the bakery could stop its losses was to end the contract. Although the projected non-union wages were just as high as under the contract, costly fringe benefit contributions were to be eliminated. As a clearly secondary factor, Kirkpatrick,also testified that the removal of contract-imposed work restrictions would permit greater flexibility to operate more efficiently.

Kirkpatrick’s testimony and exhibits were the only evidence before the court. That evidence showed continuing losses unless the contract were to be rejected. On the basis of the testimony before it that absent rejection the debtor would lose $9,000 per month, the court ruled that the Company would have to close if it was to be bound by the contract. In light of the conclusion that the alternatives were rejection of the contract versus loss of all the jobs due to closure of the business, the court ordered the contract rejected.

II

The Debtor’s initial claim that under Bankruptcy Code § 365(d)(2) he could unilaterally reject his labor contract without court approval is untenable. Code § 365(a) clearly requires court approval. Code § 365(d)(2) does not mitigate this requirement, but merely sets the temporal boundaries of the process of rejection or assumption. Indeed under the Bankruptcy Act of 1898, a serious question persisted for many years as to whether a collective bargaining contract could be rejected at all. Eventually decisions established that notwithstanding the unique status of collective bargaining contracts, they may be rejected under the bankruptcy laws. See Local Joint Ex[769]*769ecutive Board v. Hotel Circle, 613 F.2d 210, 213 (9th Cir.1980).

But, although the Ninth Circuit has not addressed the standards to be followed by the courts in ruling upon requests for leave to reject collective bargaining agreements, see id., 613 F.2d at 213, n. 2., neither it nor any other court has given any hint that either under the Bankruptcy Act of 1898 or under the present Bankruptcy Code rejection could be accomplished without court permission. In this respect then Kirkpatrick was clearly wrong in assuming he had the right to reject his contract without the court’s having first granted him permission after having applied the relevant legal standard.

The Union formulates that standard in terms of onerousness and burdensomeness — criteria that gained meaning under the Bankruptcy Act of 1898. Strictly speaking, the “onerous and burdensome” requirement is not part of the nomenclature of the Bankruptcy Code. In order to justify rejection of an ordinary commercial agreement, it is now generally accepted that, normally, the representative of the estate need only show that in his business judgment, rejection would benefit the estate. In re Huang, 23 B.R. 798 (Bkrtcy. App.Pan. 9th Cir.1982). But, all courts of appeals which have passed upon the question have ruled both under the 1898 Act and under the Code that the favored status of the rights of workers requires a more stringent examination of the evidence offered to justify rejection of collective bargaining contracts.

The court in Shopmen’s Local Union No. 455 v. Kevin Steel Products, Inc., 519 F.2d 698, 704 (2d Cir.1975), construing the Bankruptcy Act of 1898, held that a “thorough scrutiny, and a careful balancing of the equities on both sides” is a prerequisite to rejection of a collective bargaining agreement. 519 F.2d at 707, quoting from, In re Overseas National Airways, Inc., 238 F.Supp. 359, 361 (D.E.D.N.Y.1965). The Third Circuit, in In re Bildisco, 682 F.2d 72, 79 (3d Cir.1982) cert. granted, - U.S. -, 103 S.Ct. 784, 74 L.Ed.2d 992 (1983), agrees that a “thorough scrutiny, and a careful balancing of the equities on both sides” is required. The Eleventh Circuit has recently endorsed this element of the Bildisco holding. Matter of Brada Miller Freight Systems, Inc., 702 F.2d 890 (11th Cir.1983).

However, a conflict clearly exists between the Second Circuit and the Third and Eleventh Circuits inasmuch as the Bildisco decision disapproves the approach taken by the Second Circuit in Brotherhood of Ry., Airline and Steamship Clerks v. REA Express, Inc., 523 F.2d 164 (2d Cir.), cert. den., 423 U.S. 1073, 96 S.Ct. 855, 47 L.Ed.2d 82 (1975) a decision announced shortly after Kevin Steel. Bildisco criticizes the holding in REA Express that rejection should be permitted “only where it clearly appears to be the lessor of two evils and that unless the agreement is rejected, the carrier will collapse and the employees will no longer have their jobs.” REA Express, 523 F.2d at 172, as quoted in, Bildisco, 682 F.2d at 79. The Bildisco court also disapproved several lower court decisions which, apparently building upon REA Express, construe Kevin Steel as requiring a two step determination that not only must the equities be balanced and found to favor the debtor, but that failure to reject the contract will result in the collapse of the business. 682 F.2d at 79-80.

We need not choose between Bildis-co and REA

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34 B.R. 767, 1983 Bankr. LEXIS 5283, 11 Bankr. Ct. Dec. (CRR) 591, Counsel Stack Legal Research, https://law.counselstack.com/opinion/bakery-confectionery-tobacco-workers-international-union-local-85-v-bap9-1983.