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Truck Drivers Local 807 v. Carey Transportation

decided: April 9, 1987.


Appeal from an order of the United States District Court for the Southern District of New York (Richard Owen, J.), entered August 19, 1986, affirming an order and decision of the Bankruptcy Court for the Southern District of New York (Burton R. Lifland, J.), which authorized appellee's rejection of its collective bargaining agreement with appellant pursuant to 11 U.S.C. § 1113. Affirmed.

Author: Altimari

Before: MESKILL, KEARSE and ALTIMARI, Circuit Judges.

ALTIMARI, Circuit Judge:

This appeal involves the showing a debtor-employer must make in order to obtain Bankruptcy Court approval of the employer's application to reject a collective bargaining agreement in accordance with 11 U.S.C. § 1113. We agree with the conclusions and, for the most part, the analysis of the Bankruptcy Court for the Southern District of New York (Burton R. Lifland, J.). Therefore, we affirm the decision of the United States District Court for the Southern District of New York (Richard Owen, J.) upholding Judge Lifland's approval of Carey Transportation's application to reject to collective bargaining agreements with Truck Drivers Local 807 ("Local 807" or "the union").


Carey, a wholly owned subsidiary of Schiavone Carrier Corporation, commenced this litigation by filing a voluntary reorganization petition under Chapter 11 of the Bankruptcy Code in April 1985. Carey, both prior to and since that filing, has been engaged in the business of providing commuter bus service between New York City and Kennedy and LaGuardia Airports.

Local 807 has been the exclusive bargaining representative of Carey's bus drivers and station employees. Local 807 and Carey entered into collective bargaining agreements covering these two groups of employees on August 20, 1982, thereby settling a sixty-four day strike by union members. These two agreements were schedule to expire on February 28, 1986.

Carey officials have blamed the strike for a subsequent 30% drop in ridership and the yearly revenue losses that preceded its filing for reorganization. Carey has operated at a loss since at least December 31, 1981, reporting annual losses of $750,000 for fiscal year 1983, $1,500,000 for fiscal year 1984, and $2,500,000 for fiscal year 1985. Jt. App. 226.

In September 1983, Carey terminated fifty Local 807 members employed as station workers, although an arbitrator later directed that ten of them be rehired with backpay. The net result of these forty layoffs, according to Carey officials, has been an annual cost savings of approximately $1 million. Jt. App. 174.

In 1984 and 1985, Carey sought and obtained concessions from a union representing Carey's mechanics and repair-shop workers. Those concessions led to layoffs of approximately eight workers and annual cost savings estimated at $144,000. Jt. App. 372-74.

In June 1984, Carey opposed several modifications in its agreements with Local 807. After negotiations, Local 807 and Carey agreed on certain supplemental provisions applicable only to drivers hired after July 1, 1984. These "second-tier" drivers would not get any paid sick days, and they would receive significantly reduced wages, overtime pay, and benefits. These changes, according to Carey, yielded savings of only $100,000 prior to Carey's filing for bankruptcy. The reason given for the relatively small savings was that seasonal variations in industry business resulted in few drivers being hired after the effective date of the Supplement. Jt. App. 380-81.

On January 31, 1985, counsel for Carey wrote to Local 807 representatives, requesting additional modifications of the two agreements. A series of meetings took place during February and March of 1985, with Carey warning that a failure to reach agreement could force the company to file a Chapter 11 petition and, most likely, apply for permission to reject the existing agreements. Jt. App. 544-46. Near the end of these sessions, union negotiators agreed to present to union members a set of modifications affecting lunch periods, booking and check-out time, driver rotation rules, holidays, vacation days, sick days, fringe benefit contributions, supplemental unemployment compensation, and supplemental disability insurance. Jt. App. 169, 556-61, 564-69. Those concessions, if approved and implemented, would have yielded approximately $750,000 in yearly savings. Jt. App. 557.

On March 27th, however, management added to this proposed modification several additional terms, and described the resultant package as its final offer. In essence, this last set of modifications would have extended the expiration date of the contract for an additional two years, with wages and fringe benefits frozen at the proposed levels until April 1, 1987. At that time, a "reopener" provision would permit the union to bargain for increased wages and benefits during the final year of the extended contract. The union requested that there be binding arbitration if reopener negotiations proved unsuccessful, but management rejected this demand. Jt. App. 557-58.

This final offer was submitted to the bargaining unit employees on March 29, 1985 and rejected by an 82-7 vote. According to Local 807's business agent, the union members were particularly adamant about not accepting the two-year contract extension and the freeze on wages and benefits. Jt. App. 710-11.

Carey filed its Chapter 11 petition with the Bankruptcy Court on April 4, 1985, and one day later, delivered to Local 807 a proposal to modify its collective bargaining agreements pursuant to 11 U.S.C. § 1113(b)(1)(A). This post-petition proposal was designed to achieve annual savings of $1.8 million for each of the next three fiscal years. Jt. App. 117.

Carey planned to achieve savings of the magnitude by (1) freezing all wages to second-tier drivers and reducing wages for first-tier drivers (those on the payroll prior to July 1, 1984) by $1.00 per hour; (2) reducing health and pension benefit contributions by approximately $1.50 per hour; (3) replacing daily overtime with weekly overtime; (4) eliminating all sick days and reducing the number of paid holidays; (5) eliminating supplemental workers' compensation and supplemental disability payments; (6) eliminating premium payments and reducing commissions paid to charter drivers; and (7) changing numerous scheduling and assignment rules. All terms were to be frozen for three years under this post-petition proposal.

When Carey presented this proposal to Local 807, company officers were projecting fiscal year 1986 losses of approximately $950,000. (Carey revised this estimate shortly thereafter, projecting losses of $746,000. Jt. App. 39.) In a cover letter accompanying this proposal, Carey asserted that it needed to slash costs by considerably more than its projected losses in order to improve its long-term financial health by updating and expanding its bus fleet, operations, and maintenance facilities. Without savings of this magnitude, Carey explained, it would be unable to propose a feasible reorganization plan to creditors and resolve its indebtedness to them. Carey requested a meeting with Local 807 representatives "to discuss the proposals and to attempt to reach mutually satisfactory modifications of the agreement[s]." Jt. App. 118.

Shortly after the Company submitted its post-petition proposal, dissension within Local 807 became obvious; in fact, virtually all union members formed a "Drivers Committee" and hired an attorney to represent them separately from Local 807 officials. The Drivers Committee then refused to participate in most post-petition negotiations, despite union officials' pleas that they reconsider that decision to "stonewall" these sessions. Jt. App. 138-39, 702-03.

In the meantime, Carey filed its section 1113 application to reject its bargaining agreements. The Bankruptcy Court scheduled and conducted five days of hearings on Carey's application, urging the parties to continue negotiations at the same time. After the third day of hearings, a Local 807 officer presented to Carey a counter-proposal designed to achieve annual costs savings of $776,000. The counter-proposal would have extended the expiration date of the existing agreements by fifteen months, and frozen wages and benefits except for a reopener, with binding arbitration, schedule for June 24, 1986. Jt. App. 191-93, 671-87. Carey found the counter proposal unacceptable, and the hearings continued.

The central issues at the hearing, as on this appeal, were whether the post-petition proposal contained only necessary modifications of the existing agreements, see 11 U.S.C. § 1113(b)(1)(A), whether that proposal treated all parties fairly and equitably, see id., whether Local 807 lacked good cause for rejecting that proposal, see § 1113(c)(2), and whether the balancing of the equities clearly favored rejection of the bargaining agreements. See § 1113(c)(3).

On June 14, 1985, the Bankruptcy Court issued its decision approving Carey's application to reject the collective bargaining agreements. Bankruptcy Judge Lifland adopted, with certain modifications, a nine-step analysis of § 1113 first used in In re American Provision Co., 44 Bankr. 907 (Bankr. D. Minn. 1984). Applying this analysis, he held that Carey had met its burden of proving compliance with the procedural and substantive ...

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