USCA1 Opinion

United States Court of Appeals

For the First Circuit
____________________

No. 96-1010

UNITED FOOD AND COMMERCIAL WORKERS UNION,

LOCAL 328, AFL-CIO,

Plaintiff-Appellant,

v.

ALMAC'S INC., et al.,

Defendants-Appellees.

____________________

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF RHODE ISLAND

[Hon. Mary M. Lisi, U.S. District Judge]

___________________

____________________

Before

Lynch, Circuit Judge,

_____________

Coffin, Senior Circuit Judge,

____________________

and Cummings,* Circuit Judge.

_____________

____________________

Warren H. Pyle,
________________

with

whom Angoff, Goldman, Manning, Pyle

_________________________________

Wanger, P.C. was on brief, for appellant.

____________
Joel D. Applebaum, with
__________________
brief, for appellee.

whom Pepper, Hamilton & Scheetz was

____________________________

____________________

July 24, 1996

____________________

____________________

*Of the Seventh Circuit, sitting by designation.

LYNCH, Circuit
LYNCH, Circuit

Judge.
Judge.

This

case raises

an important

______________

issue

at

the intersection

federal labor policy.

of

federal

Almac's, Inc., a

bankruptcy law

and

New England grocery

store chain that employed over 3000 people petitioned in 1993

for reorganization

11 U.S.C.

under Chapter 11 of

1101 et seq.
________

Over

representing the employees, the

the Bankruptcy Code,

the objection of

the union

bankruptcy court in a series

of emergency interim orders allowed the debtor

to reduce the

employees' wages

for almost

year.

by nine

The employees claim

wages, but

these

collective

bargaining

survive

company.

to fifteen

and

emergency

The union

to have lost

interim

agreement

ultimately

to

percent

over $9,630,000 in

modifications

permitted the

reorganize

ultimately agreed

into

to a

to

company

the

to

successor

new collective

bargaining

sought

agreement with

the

$9,630,000

characterizing

rejection"

agreement)

that

of

the

an

the

lost

interim

successor company.

in

did

executory

not

contract

intend

"rejections"

of

the

collective

Accordingly, the union and its

it

wages,

"partial

bargaining

365.

We hold

emergency

interim

1113(e) to be treated

bargaining

agreement.

members are not entitled here

to their lost wages and we affirm.

-2-2-

for

as

in

(the

11 U.S.C.

modifications ordered under 11 U.S.C.

as

interim

modifications

within the meaning of

Congress

the

But

Local 328,United Food and CommercialWorkers Union, AFL-

CIO ("Local

328") and Almac's, Inc.

("Almacs") were parties

to a collective bargaining agreement covering the period June

7, 1993 to

June 1,

delineated

the

conditions

of

1996 (the "Agreement").

wages,

benefits,

employment for

and

The

other

approximately

Agreement

terms

and

three thousand

Almacs

employees

in Rhode

Island

and

Massachusetts.

On

August 6, 1993, shortly after the Agreement went into effect,

Almacs petitioned for reorganization

Bankruptcy Code.

In October 1993, after reducing

and benefits of unrepresented

section

under Chapter 11 of the

1113(e) to

the wages

employees, Almacs moved

implement interim

under

modifications to

the

wages and benefits of employees covered by the Agreement.

The

bankruptcy

modifications [were]

operations

court

not

of Almac's,

fifteen

percent

employees covered by

that

only essential

but [were]

successful reorganization."

both

found

"the

to

vital to

the

in

the

continued

any hope

It granted Almacs'

reduction

requested

of a

request for

wages

the Agreement and a reduction

of

all

in wages

and benefits for

time

positions.

employees who had been

downgraded to part-

This

modification

was

effective through

requested

and received

consecutive extensions

December 31, 1993.

Almacs

to

the modification,

although

-3-3-

the court

reduced the

wage

modification from fifteen percent

to twelve percent and then

to nine percent of the wages originally in effect.

periodically

granted

September 30,

1994.

modifications

The court

effective

Throughout this time

through

period, Local 328

and Almacs were involved in negotiations over the fate of the

Agreement.

Almacs never filed an

application under section

1113(b) to reject the Agreement.

Following

each modification

order, Local

328 and two

employees, as class representatives for the Almacs employees,

filed claims for the difference between the modified wage and

benefit

rates and those

total amount

ultimately claimed

Although from the

were

provided under the

initially

face of

pressed

was "at least

the claims it

as

Agreement.

$9,630,000."

appears that

administrative

The

they

expense claims,

Local

328

later

unsecured claims.

agreed

Local

to

assert

them

only as

328 does not now purport

general

to assert

an administrative claim.

Almacs objected

to the

class representatives.

claims of

Local

After a hearing

328 and

on October 21, 1994,

the bankruptcy court sustained Almacs' objections.

and the

the

employee claimants appealed to

Local 328

the district court.1

____________________

1.

After Local 328

reorganization was
approved
the

filed the

notice of appeal,

ratified by the creditor

assets would

be sold

company, New Almac's, Inc. ("New Almacs").

into a

to operate Almacs' business.

new collective

Under

to a

newly formed

New

Almacs would

Local 328 had entered

bargaining agreement with

-4-4-

of

groups and then

by the bankruptcy court on November 8, 1994.

plan, Almacs'

continue

a plan

New Almacs

The district

for

court affirmed,

recognizing

modifications to

and hence

interim

would

the Agreement

a breach

wage

claim

reasoning that the

of

"judicially sanctioned,

no viable claim arises."2

viewing

as amounting to

an executory

modifications

require

only basis

under

a rejection

contract, but

section

no breach occurs, and,

the

because

1113(e)

are

as a result,

Local 328 has appealed

from that

decision.

II

The bankruptcy court's order

review

here, and we accept

is subject to independent

all bankruptcy court findings of

fact unless "clearly erroneous" and review rulings

novo.
____

In re LaRoche, 969 F.2d 1299,

______________

Because

there

was no

appeal

interim

orders, we accept

from

of law de
__

1301 (1st Cir.

the bankruptcy

that court's findings

1992).

court's

of fact in

____________________

which

took

effect

upon

approval

of

the

plan

of

reorganization.
In

connection

reorganization,
rejection

of the

Local

with
328

the
and

approval
Almacs

(original) Agreement

of

the

stipulated
by Almacs.

plan

of

to

the

In

the

stipulation, Local 328 waived any claim

for damages based on

this consensual rejection of the Agreement, but preserved the

issue raised in this

appeal.

No petition for

rejection was

submitted to the court.

2.

The district

could

not

before

section

court also reasoned that

be sustained
plan of

because it

reorganization

1129(a)(9)(A), thus

Catch-22

situation.

correct

statement

could

putting

Both parties
of

would

the

law

administrative expense claims.

the
agree
only

have to

be paid

be approved
employer
that
with

under
into

this is

respect

Local 328 does not

appeal that it has an administrative claim.

-5-5-

Local 328's claim

to

argue on

support of

those orders as

questions

about

conformance with

whether

final and

those

the statute

deem there

orders

or about

were

to be

no

issued

in

the duration

of the

emergency conditions.

At

the outset,

it is

nature of Local 328's claim.

it

has

general

characterization of

the

claim for

claim,

based

interim modifications

wages

for post-petition work.

claim

based on

precise

as

on

the

"partial

Local 328 does not assert here

___

administrative expenses

the

note the

Local 328 argues on appeal that

unsecured

rejections" of the Agreement.

important to

under section

Nor does Local

consensual rejection

503 for

328 assert a

of the

Agreement

while

its

appeal

district court.

bankruptcy

of

this

Finally,

court

lacked

issue

was

pending

before the

Local 328 does not argue

authority

to

order

the

that the

interim

modifications.

III

A brief

review of

the context

in which section

was enacted is helpful to understand Local 328's

1113

argument on

appeal.

Under section 365 of the Bankruptcy Code, a trustee

(or

debtor-in-possession) has

the

court approval, of either

contract.

The

"constitutes

a breach

the

choice, subject

to

assuming or rejecting an executory

rejection

of such

before the date of the filing

of

an

contract

executory

. .

of the petition."

contract

. immediately

11 U.S.C.

-6-6-

365(g)(1).

In 1984,

interpreting

section

Congress

the Supreme

365,

one

to enact section 1113

Court issued

portion

of which

of the Bankruptcy

a decision

prompted

Code.

In

NLRB v. Bildisco & Bildisco, 465 U.S. 513 (1984), the Supreme
____
___________________

Court

held

that

collective

bargaining

agreements

were

executory contracts for purposes of section 365, but that due

to

the special nature of such agreements, the rejection of a

collective

bargaining

agreement

standard more strict than

contracts.

should

be governed

by

that applicable to other kinds

See id. at 522 &

___ ___

n.6, 526.

of

The Court suggested

that the rejection of a collective bargaining agreement would

result in

estate.

a general

the bankruptcy

Id. at 530-31 & n.12; see also In re Continental Air

___
________ _____________________

Lines Corp., 901

____________

holdings

unsecured claim against

F.2d 1259,

were not

1265 (5th

what motivated

Cir. 1990).

the enactment

These

of section

1113.

Congress's primary

was with one

of the

concern

in enacting

Court's other holdings

section

in Bildisco
________

1113

--

that

a debtor

making

did not

unilateral changes

employment,

prior

bargaining

agreement,

enforceable upon

U.S. at

commit an

534.

to

to

Under

the terms

formally

because the

the filing of

unfair labor

practice by

and conditions

rejecting

agreement was

collective

no longer

a bankruptcy petition.

section 1113,

a collective

of

465

bargaining

agreement remains in effect after the filing of a petition in

-7-7-

bankruptcy.

terms or

unless

A trustee may not make unilateral changes in the

conditions

the

rejection

court

of a

collective

fails

within the

to

rule

required

bargaining

on

time

an

agreement

application

frame.

11

for

U.S.C.

1113(d)(2) & (f).

Congress recognized

on occasion a

collective

assumption

in enacting

debtor may require

bargaining

or

emergency relief from

agreement

agreed-upon

section 1113(e)

prior

modification of

during

period

bargaining agreement

when

the

the

to

rejection,

the

agreement.

Section 1113(e) thus provides:

If

that

collective

continues in effect, and if

essential

to the

continuation

business,

or

order

in

damage

to the

and

hearing,

implement

may

changes

wages,

provided

a collective

hearing

scheduled in
trustee.
changes

in

not

the
or

to

terms,

work

paragraph
with the

The implementation
shall

notice

rules

bargaining agreement.

this

accordance

irreparable

the trustee

benefits,

under

debtor's

court, after

authorize

conditions,

Any

avoid

estate, the

interim

by

to

of the

shall

be

needs of

of

such

the

interim

render

the application

Local 328

claims that

for

rejection moot.

11

U.S.C.

1113(e).3

the interim

____________________

3.

The other provisions of section 1113 codify the standards

that must be met before a collective bargaining agreement may

be rejected.

In

Bildisco, the
________

Supreme

Court

held

rejection of a collective bargaining agreement was

if

the

"debtor

can

agreement

burdens

scrutiny,

the equities

show

the

the

collective-bargaining

estate,

and

that

balance

in favor

465 U.S. at 526.

"[b]efore

on

permitted

that

labor contract."
acting

that

petition

after

careful

of rejecting

the

The Court also held that

to

modify

or

reject

collective-bargaining agreement

. .

should be

persuaded that

voluntary

modification have been made

. the

Bankruptcy Court

reasonable efforts to

negotiate a

and are not likely to

-8-8-

modifications permitted

partial

From

rejections of

this, it

by the statute should

the collective

argues it

under section 365.

is entitled

be treated as

bargaining agreement.

to rejection

damages

We note first that

premise that

rejection,

even were we to accept

Local 328's

the interim modifications constitute

section

1113,

which governs

the

a partial

rejection

collective bargaining agreements, is silent as to

rejection

courts

should be

have

permitted

divided over

at

bargaining

treated

all

after

agreement under

under section

whether

the

rejection

section

how such a

365.4

a claim

of

Indeed,

for

damages is

collective

of

1113.

Compare
_______

Truck
_____

Drivers Local 807 v. Carey Transp., Inc., 816 F.2d 82, 93 (2d
_________________
___________________

____________________

produce

a prompt

and satisfactory

solution."

Id.
___

Under

section 1113, before filing a petition to reject a bargaining

agreement,

the debtor

must

"based

the

complete

on

most

make a
and

proposal to

the union,

reliable

information

available at the
those

time of such

necessary modifications in

protections that
of
all

proposal, which provides

for

the employees benefits and

are necessary to permit

the reorganization

the debtor and assures that all creditors, the debtor and
of

the

affected

equitably," and

parties

are

must provide the union

necessary to evaluate the proposal.

A court

may approve an

finding

that the

proposal,

that

treated

fairly

with the information

11 U.S.C.

1113(b)(1).

application for rejection

debtor or
the union

trustee
refused

has made
to

and

only upon

the required

accept the

proposal

without good cause, and that the "balance of equities clearly

favors rejection
Because

Almacs

of [the] agreement."
never filed

an

11 U.S.C.

application

1113(c).

to reject

the

Agreement, these provisions were not invoked.

4.

Because the

changed

since

would appear

relevant language of section

Bildisco,
________

still to

collective

be subject to

provisions.

-9-9-

365(g) has not

bargaining

agreements

the section's

general

Cir. 1987) (in balancing the equities to determine whether an

employer was

permitted

to reject

collective

bargaining

agreement under section 1113, one factor to consider was "the

possibility

and likely

effect

breach of contract if rejection

of any

employee claims

for

is approved"); In re Maxwell
_____________

Newspapers, Inc., 146 B.R. 920, 934 (Bankr. S.D.N.Y.) (same),

________________

rev'd on other grounds,

_______________________

149 B.R.

part and rev'd in part, 981 F.2d

________________________

334 (S.D.N.Y.), aff'd in

_________

85 (2d Cir.

1992); In re
_____

Texas Sheet Metals, Inc., 90

_________________________

B.R. 260, 272-73

(Bankr. S.D.

Tex. 1988) (same); and In re Moline Corp., 144 B.R. 75, 78-79
___ __________________

(Bankr.

N.D.

suggesting

Ill.

1992)

that because

effect of assumption or

to fill

section

(E.D. Tenn.

says

assumption

nothing

and

about

In re Blue Diamond Coal Co., 147

____________________________

727-28 (Bankr. E.D.

574, 576-77

1113

same

rejection, "[section] 365 must apply

in the gap") with

____

B.R. 720,

(making

Tenn. 1992), aff'd,

_____

1993) (rejecting claim

160 B.R.

for damages

based on the rejection of a collective bargaining agreement).

Cf. Mass. Air Conditioning & Heating Corp. v. McCoy, 196 B.R.
___ ______________________________________
_____

659

(D.

Mass.

1996) (assumption

of

collective bargaining

agreement governed by section 365).

We do

not reach that

question here,

however, because

we

not

hold that the language

permit

interim

and structure of

changes

authorized

section 1113 do

thereunder

to

construed as "rejections" for purposes of section 365(g).

-10-10-

be

We turn to the unambiguous text of

effect to its

Louis,
_____

82

plain meaning.

F.3d

1, 3

(1st

the statute, giving

See Lomas Mortgage, Inc.

___ _____________________

Cir.

1996).

Section

v.

1113(e)

provides that the trustee may implement "interim changes" and

that "interim

rejection

moot."

"rejection" and

actions.

changes shall

Section

to

1113(e)

"interim changes" as two

application for

clearly

speaks

of

different types of

By choosing a different word, "change," to describe

the interim action, Congress

not
___

not render the

have

"rejection."

the

surely intended for that action

consequences

Indeed,

section

"implementation of such interim

application for

rejection moot."

that would

1113(e)

is

follow

from

explicit

that

changes shall not render the

That

"interim changes" do

not

moot

"rejection"

establishes

that

the

former

constitutes relief different from the latter.

_________

The framework of section 1113

changes"

are not

statute,

by

before

setting forth

the

bargaining agreement,"

mutually

agreement,"

actions

species as

debtor-in-possession

collective

"reach

the same

that

satisfactory

11 U.S.C.

may be

collective bargaining

also shows that "interim

a "rejection."

procedures

"may

to be

assume

or

11 U.S.C.

The

followed

reject

1113(a),

modifications

of

or

such

1113(b)(2), contemplates three final

taken

with

agreement.

respect to

"Rejection"

agreement is one of these final actions.

particular

of the

whole

-11-11-

Each of

suggests

the extensive

that

"rejected" once,

collective

in its

provisions regarding

bargaining

entirety, not

rejection

agreement is

in bits

only

and pieces.

This is because the debtor must make a proposal to modify the

agreement and meet with

to

reach

consensus

the union representatives to attempt

before

"seeking

rejection

of

[the]

collective

Further,

bargaining

the

court

agreement."

must

make

11

U.S.C.

certain

1113(b).

findings

approving a petition for rejection.

Id.
___

the

a collective

effects

agreement

involves

of the

under

rejection

section

final

1113,

repudiation

Interim
_______

changes under

are, by

definition, not

pending

the

final

rejection, while

of

rejection is

of

the

section 1113(e),

act

the

1113(c).

final.

of

assumption,

agreement still

act

entire

They only

Whatever

bargaining

an

on the

before

that

agreement.

other hand,

are implemented

modification

remains otherwise

or

in

effect.

Finally,

approval

by

providing

of "rejections"

and

different

standards

for

the

"interim

changes,"

Congress

clearly intended not to treat the latter as merely a category

of the former.

a procedural

the

debtor

The

standards governing rejections have both

component and a substantive

may

even

bargaining agreement,

file

an

it must make

component.

application

to

a proposal to

Before

reject

the union

for modifications to the contract, and the application cannot

-12-12-

be

approved

unless

the

without good

cause.

11 U.S.C.

debtor

union has

rejected

1113(b)(1) &

must also negotiate with

the union in

reach mutually satisfactory modifications.

The substantive

proposal

encompass only

Because a plan of

likely to

further

those

(c)(2).

The

an attempt to

Id.
___

1113(b)(2).

are

modifications "necessary

of the debtor."

Id.
___

by liquidation

reorganization," id.
___

proposed

with

success of the debtor's business.

a view

to

1113(b)(1).

reorganization may not be confirmed

be followed

financial

modifications

proposal

component requires that the debtor's initial

permit the reorganization

is

the

or the

if it

"need for

1129(a)(11), the

to

the

long-run

The

hand,

standards

"notice

substantive standard

the

and

of

the

would

debtor's

Almac's, Inc., 159 B.R.

_____________

"interim

the

other

required.

The

must be "essential

business."

Id.
___

"interim changes" are

conditions, when the

likely collapse.

347, 350

on

the basic procedural

hearing," are

under emergency

Freightways, 46 B.R.
___________

of

Only

This language suggests that

only permitted

otherwise

term.

is that the changes

continuation

1113(e).

scope

"interim changes,"

deal with the short

safeguards,

to

for

See
___

debtor

In re Salt Creek
__________________

(Bankr. D. Wy.

1985); In re
______

665, 666 (Bankr. D.R.I. 1993).

changes"

is

more

limited

modifications "necessary for reorganization."

than

See Martha
___

The

the

S.

West,

Life After Bildisco:

Section 1113 and the Duty to
____________
__________________________________

-13-13-

Bargain in Good Faith,

_______________________

Because "interim

47 Ohio

changes" are

term viability of the

St.

L.J. 65,

ordered to ensure

debtor, they do not dictate

146 (1985).

the short-

the final

decision to

assume, reject

or mutually modify

the original

collective bargaining agreement.

If Congress

it could

had intended the

easily have

provided so

provision allowing for a

"partial rejections,"

result Local

by inserting an

328 urges,

explicit

claim, by calling "interim changes"

or by using other

language from which

it could be definitively inferred that "interim changes" were

"rejections"

section 365.

suggest

Congress

subject

to

the

The language

this treatment.

intended

consequences

delineated

Congress actually used

There is

"interim

simply no

changes"

to

be

in

does not

evidence that

the

same

as

"rejection."

Local 328 argues that not

changes

here as a

treating the section 1113(e)

rejection would

lead to

an unreasonable

outcome because the modifications

effect

as

a rejection.

See
___

in this case had the

Massachusetts v.
_____________

same

Blackstone
__________

Valley Elec. Co., 67 F.3d 981, 986 (1st Cir. 1995) ("[P]lain
_________________

meaning

palpably

must

govern

unreasonable

[a statute's]

outcome

would

adopting Local 328's premise, we

reach is far from unreasonable.

the

denial

of

remedy

application,

result.").

-14-14-

Without

conclude that the result we

Congress could

to

unless

compensate

have thought

for

interim

modifications was a reasonable quid pro quo to the debtor, in

____________

exchange for

the protective benefits that

from allowing

the collective bargaining

in effect

following the

filing

Before Congress enacted section

to make

agreement

after filing

did

465 U.S.

petition in

not constitute

at

534.

agreement to remain

Chapter 11

petition.

1113, a debtor was permitted

unilateral modifications to a

modification

Bildisco,
________

of a

flow to employees

collective bargaining

bankruptcy and

an unfair

In

section

such

labor practice.

1113,

Congress

provided

that

collective

bargaining

agreements

are

enforceable against the debtor after the filing of a petition

for

reorganization.

11

Collier on Bankruptcy
_____________________

U.S.C.

1113.01[4][b],

(Lawrence P. King ed., 15th ed.

heightened

protection,

emergency

bargaining

employees

before

agreement

any

(e) &

(f);

at 1113-14 to 1113-15

1995).

Congress

required employees to accept

an

1113(c),

In exchange for this

could

reasonably

have

decreased wages and benefits in

final action

is taken,

to recover all or

without

part of the

on

the

collective

providing for

the

wages and benefits

lost in the interim reductions.

The interim changes authorized

under

section

1113(e)

were

not,

by the bankruptcy court

in

and

of

themselves,

"rejections"

of

the Agreement

Bankruptcy Code.

Affirmed.
_________

-15-15-

within

the

meaning of

the