Appeal by the Brotherhood of Railway, Airline and Steamship Clerks and the International Association of Machinists and Aerospace Workers from a decision of the United States District Court for the Southern District of New York, Inzer B. Wyatt, Judge, permitting REA, as debtor-in-possession of REA Express, Inc., to disaffirm executory collective bargaining agreements with the two unions under § 313(1) of the Bankruptcy Act, 11 U.S.C. § 713(1). Remanded.
Clark, Associate Justice,*fn* Mansfield and Mulligan, Circuit Judges.
MANSFIELD, Circuit Judge:
Once again we are called upon, within a matter of weeks, to determine whether a trustee or debtor-in-possession in bankruptcy under the Bankruptcy Act may, under § 313(1) of that Act, 11 U.S.C. § 713(1), disaffirm executory collective bargaining agreements entered into by the debtor. In Shopmen's Local Union No. 455, et al., and NLRB v. Kevin Steel Products, Inc., 519 F.2d 698 (2d Cir. 1975), we held that § 313(1) permits the bankruptcy court to authorize a trustee or debtor-in-possession to reject a collective bargaining agreement governed by the National Labor Relations Act upon a showing that it is onerous and burdensome and that the equities tip decidedly in favor of termination. In the present case we similarly hold that executory collective bargaining agreements subject to the provisions of the Railway Labor Act, 45 U.S.C. § 151 et seq., may be rejected but remand the case for further determination as to whether the agreements in issue are sufficiently onerous and burdensome to warrant grant of such authority pursuant to § 313(1).
REA Express, Inc. ("REA" herein), a corporation engaged in the surface and air transport of express shipments, is a party to separate collective bargaining agreements with two unions (the "unions" herein), the Brotherhood of Railway, Airline and Steamship Clerks ("BRAC" herein) and the International Association of Machinists and Aerospace Workers ("IAM" herein). These agreements govern the wages and working conditions of approximately 6,600 persons of some 7,600 currently employed by REA. The agreements expire on December 31, 1975, and June 1, 1976, respectively. In addition to matters usually covered in a collective bargaining agreement, the agreements substantially affect REA's right to close or consolidate facilities and transfer or lay off workers. In particular, both agreements require payment of supplementary unemployment benefits to workers who are laid off, and the BRAC agreement provides that workers who elect to follow their work in a consolidation are entitled to free transportation and other allowances for the dislocation. Under the BRAC agreement, transfers and consolidations can be effected by REA only upon notice to the union and with substantial delays. BRAC, furthermore, may demand arbitration of a dispute over the effects of a consolidation.
On February 18, 1975, REA and several affiliated companies filed petitions under Chapter XI, § 322 of the Bankruptcy Act, 11 U.S.C. § 205 et seq., and by court order REA was continued as debtor-in-possession of its property. On March 24 REA moved pursuant to § 313(1) of the Bankruptcy Act, 11 U.S.C. § 713(1),*fn1 and Rule 11-53 of the Rules of Bankruptcy Procedure, for an order permitting rejection of the BRAC and IAM agreements as onerous and burdensome. In support of this motion, REA presented evidence, accepted by the Bankruptcy Judge, that it had incurred substantial liabilities as debtor-in-possession, had an outstanding payroll liability of over four million dollars, and was unable to meet its expenses on a current basis. REA claimed that it could not continue to operate without significantly reducing costs, and had developed a plan for drastic curtailment and consolidation of its operations. In sum, the collective bargaining agreements are claimed to be onerous and burdensome because (1) their supplemental unemployment and consolidation provisions would completely forestall the debtor, which is insolvent, from adopting and implementing a reorganization plan that would enable it to survive, and (2) the debtor cannot meet the full wage scales provided for in the agreements.
While fully accepting the evidence of REA's economic plight, Bankruptcy Judge Galgay nonetheless denied authority to disaffirm the two contracts, holding that "this is not the kind of rejection or disaffirmance intended by Congress nor would it be within the overall scheme of Chapter XI." REA immediately appealed this decision to the Southern District of New York, see 11 U.S.C. § 67(c), where Judge Wyatt reversed. Judge Wyatt found on his review of the record that the agreements were onerous and burdensome "in any ordinary sense" and concluded that there was no limitation on the type of executory contract which a trustee or debtor-in-possession was permitted by § 313(1) to reject.
In Kevin Steel we faced the question of whether a debtor-in-possession under Chapter XI of the Bankruptcy Act, which is subject to the National Labor Relations Act, may be authorized by the district court to reject an executory collective bargaining agreement. We concluded that such authority is to be found in the broad language and purpose of § 313(1) which provides, without qualification, that the court may "permit the rejection of executory contracts of the debtor". Although § 8(d) of the National Labor Relations Act, 29 U.S.C. § 158(d), to which Kevin Steel Products, Inc. was subject, prohibits any party to a collective bargaining agreement from terminating or modifying it unilaterally prior to exhausting certain negotiating procedures, we reasoned that, unless and until the agreement is assumed by the debtor-in-possession, the latter, being a different entity from the pre-bankrupt company, is not a "party" to the agreement and hence not subject to § 8(d)'s termination restrictions with respect to it.
Thus the tension between the Bankruptcy Act's policy in favor of giving the debtor a new start and the Labor Act's policy of encouraging enforcement of collective bargaining agreements was resolved by holding that, absent a clear Congressional mandate to the contrary, such as that specified in § 77(n) of the Bankruptcy Act, 11 U.S.C. § 205(n), with respect to "railroad employees", the enforcement of a collective bargaining agreement must yield to the bankruptcy court's power to relieve the debtor's successor in bankruptcy immediately of onerous and burdensome executory contracts. At the same time we decided that a bankruptcy court must scrutinize with particular care applications for rejection of collective bargaining agreements, carefully balancing the equities on both sides in light of the Labor Act's policy. The case was accordingly remanded to the district court for a more thorough discretionary reconsideration of the advisability of authorizing rejection of Kevin Steel's collective bargaining agreement.
The central question before us in this case is whether a collective bargaining agreement subject to the Railway Labor Act ("RLA"), 45 U.S.C. § 151 et seq., is governed by the same principles. The unions maintain that the RLA's plain language prohibits any such rejection of a collective bargaining agreement made by the debtor-carrier except in the manner prescribed by that Act. We disagree. The face of the RLA, it is true, appears at first glance to lend some support to the unions' position. A "carrier" is defined by § 1 of the RLA to include "any receiver, trustee, or other individual or body, judicial or otherwise, when in the possession of the business of any such 'carrier'. . . ." 45 U.S.C. § 151.*fn2 Section 2 of the RLA then provides that:
"No carrier, its officers, or agents shall change the rates of pay, rules, or working conditions of its employees, as a class, as embodied in agreements except in the manner prescribed in such agreements or in section 156 of this title." 45 U.S.C. $152, Seventh.
In addition, § 6 of the RLA, 45 U.S.C. § 156, (referred to above in § 2 as "section 156 of this title") obligates a carrier to utilize a protracted procedure for resolution of differences with respect to any proposed changes in a collective bargaining agreement, pending completion of which the carrier must maintain the status quo, even if the agreement has expired. See Manning v. American Airlines, Inc., 221 F. Supp. 301 (S.D.N.Y. 1963), aff'd., 329 F.2d 32 (2d Cir.), cert. denied, 379 U.S. 817, 13 L. Ed. 2d 29, 85 S. Ct. 33 (1964). Section 6 requires that at least thirty days' written notice be given of any intended changes in rates of pay, rules or working conditions and it requires conferences to be held with respect to the changes. The RLA further provides for submission of disputes to the National Mediation Board, see 45 U.S.C. § 155, if requested by either party or if the Board proffers its services. Section 6 also specifies that, pending the exhaustion of these procedures, "rates of pay, rules, or working conditions shall not be altered by the carrier . . . ."
The purpose of these provisions of the RLA, like that of § 8(d) of the National Labor Relations Act, 29 U.S.C. § 158(d), which was before us in Kevin Steel, is to avoid disruptions of commerce by forcing the parties to exhaust collective bargaining procedures and, where the RLA applies, to encourage use of arbitration and mediation before engaging in self-help, strikes or other forms of unilateral action. The unions contend that a trustee or debtor-in-possession, being a "carrier", is obligated to use the ...