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Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 

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t-~1.\R ~ 0 1996 

PUBLISH , .~t-~--::fT L HOECKER. 

IN THE UNITED STATES COURT OF APPEALS 

FOR THE TENTH CIRCUIT 

IN RE: MILE HI METAL SYSTEMS, ) 

INC., ) 

) 

Debtor. ) 

) 

} 

SHEET METAL WORKERS 1 } 

INTERNATIONAL ASSOCIATION, } 

LOCAL 9, 

v. 

MILE HI 

} 

} No. 86-2912 

Appellee, ) 

) 

) 

) 

METAL SYSTEMS, INC. I ) 

} 

Appellant. ) 

APPEAL FROM THE UNIT~D STATES DISTRICT COURT 

FOR THE DISTRICT OF COLORADO 

(D.C. NO. 85-M-2133) 

Clerk 

Robert M. McConnell, Collins & McConnel~ (formerly of Holl~nd & 

Hart}, Colorado Springs, Colorado (Robert M. Duitch, Duitch & 

Johnson, P.C., Colorado Springs, Colorad~s with him on the 

briefs), for Appellant, Mile Hi Metal Systems, Inc. 

Ellen M. Kelman (Walter C. Brauer, III, with her. on the brief), 

Brauer & Buescher, P.C., Denver, Colorado, for Appellee, Sheet 

Metal Workers' International Association, Local No. 9. 

Before SEYMOUR, ANDERSON, and BRORBY, Circuit Judges. 

ANDERSON, Circuit Judge. 

... 

. .. 

Appellate Case: 86-2912 Document: 01019729256 Date Filed: 03/20/1990 Page: 1 
This appeal requires us to interpret for the first time 11 

U.S.C. § 1113 ("section 1113"), which sets forth the procedures 

and conditions under which a debtor-in-possession or trustee may 

reject a collective bargaining agreement. At the heart of this 

matter is the requirement in section 1113(b}(l)(A} that the debtor 

make a proposal which sets out: 

11 those necessary modifications in the employees [sic] 

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." 

The district court ruled that in no event may the proposed modifications violate federal labor laws, and that for a debtor•s motion 

to reject a collective bargaining agreement to be granted the 

debtor must propose only modifications to the agreement which are 

absolutely necessary for it to reorganize. Because we disagree on 

both ~aunts, we reverse the judgment of the.district court and 

remand the case for further proceedings. 

I. FACTUAL AND PROCEDURAL BACKGROUND 

On April 12, 1985, appellant-debtor Mile Hi Metal Systems, 

Inc., filed a voluntary petition for reorganization under Chapter 

11 of the Bankruptcy Code. Thereafter, members of appellee Sheet 

Metal Workers• International Association, Local No. 9 ( 11 the 

Union") walked off the job sites and Mile Hi hired non-Union 

replacement workers. On June 10, Mile Hi filed a motion to reject 

its collective bargaining agreement with the Union. 

Attached to the motion was a copy of a letter which Mile Hi 

had sent to the Union twelve days earlier, setting out proposed 

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Appellate Case: 86-2912 Document: 01019729256 Date Filed: 03/20/1990 Page: 2 
modifications in the collective bargaining agreement. Two of the 

proposed modifications, plus one subsequent oral statement by a 

Mile Hi representative 1 are relevant to this appeal. They are as 

follows: 

"1. That Article S,·paragraph 5-l [of the collective bargaining agreement] be modified to reflect that 

the employer will be permitted to hire Non-Union 

permanent employees as replacements for strikers without 

the requirement that those employees become Union 

members except and unless such employees desire membership in the Union. 

3. That Article 4, paragraph 4-4 be modified to 

reflect that a Steward will only be required if there 

are three (3) or more Union employees on any job." 

R. Vol. I at 25-26 (emphasis in original). During the hearing on 

the motion, one of Mile Hi's owners stated that the non-Union 

replacement workers would be paid "at whatever rate [Mile Hi) 

could hire them rather than·at the contract rate." R. Vol. IV at 

38. 

No meetings or negotiations between the parties took place 

until after Mile Hi applied for authorization to reject the agreement. The parties met once before the hearing, with no success. 

Shortly after the hearing commenced, the bankruptcy court 

adjourned the proceedings to allow further negotia~ion. No result 

came from these meetings, either. The Union's position in the 

negotiating sessions was that some of the proposed modifications 

were illegal as a matter of labor law, and that it would consider 

no part of the proposal until the offending provisions were 

eliminated. Mile Hi's representatives insisted upon the legality 

of the provisions and refused to delete them. 

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Appellate Case: 86-2912 Document: 01019729256 Date Filed: 03/20/1990 Page: 3 
The hearing resumed, and Mile Hi's motion was granted. The 

bankruptcy court did not consider the Union's allegations that 

some of the modifications were contrary to labor law. Instead, 

the court stated: 

"[T]he Union ••• has alleged that there were illegal 

provisions in the hiring of non-Union replacements and 

the Court finds that it has no jurisdiction or authority 

to decide that issue but finds that it is not a basis to 

reject the proposal in total [sic] and that the Union 

should have, in good faith, accepted' all other provisions so that there could have been a determination of 

whether dr not that specific proposal was acceptable." 

Order on Debtor's Motion to Reject Collective Bargaining Agreement, June 20, 1985, p. 3. 

The district court reversed, declaring the bankruptcy court's 

refusal to consider the Union's allegations to be an error of law. 

See In re Mile Hi Metal Sys., Inc., 67 B.R. 114, 117 (D. Colo. 

1986). The court went Qn to find that the disputed provisions 

were not "necessary," as section 1113(b)(l)(A) requires, because 

they exceeded the absolute minimum needed for Mile Hi's reorganization. Id. at 118. In addition, the court found that the 

proposed wage differential would have been an unfair labor 

practice, and consequently that the proposal did not satisfy the 

requirement in section 1113{b)(l)(A) of treating the Union "fairly 

and equitably," and justified the Union in refusing even to 

consider it. Id. Our reading of the statute leads us to different conclusions. Accordingly, we reverse the district court, 

vacate the order of the bankruptcy court, and remand for further 

proceedings. 1 

1 The Union has moved to dismiss this appeal on the grounds of 

[footnote continued •.• ] 

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Appellate Case: 86-2912 Document: 01019729256 Date Filed: 03/20/1990 Page: 4 
II. DISCUSSION 

Section 1113 was passed in response to the Supreme Court's 

decision in NLRB v. Bildisco & Bildisco, 465 u.s. 513 (1984), 

which permitted a debtor to reject a collective bargaining agreement unilaterally. Congress agreed that a debtor should be able 

to reject the agreement, but not that it should be able to do so 

on its own. 2 Section 1113 provides in pertinent part: 

[ ••• footnote continued] 

mootness, based on the -fact that Mile Hi's Chapter 11 proceedings 

were dismissed during the pendency of the appeal after Mile Hi•s 

business failed and it ceased operations. An arbitration 

proceeding between the parties involving the collective bargaining 

agreement was allowed to go forward simultaneously with the 

proceedings in the bankruptcy court, and resulted in an award 

against Mile Hi for approximately $700,000. The basis of the 

award is Mile Hi's failure to abide by the agreement after the 

district court retroactively reinstated it, following the 

bankruptcy court's decision. Thus, the basis of the award is 

directly affected by this appeal. Because the Union has made itclear that it intends to pursue this award against Mile Hi (which 

continues to exist as a corporate entity) and whatever other 

targets present themselves, a controversy between the parties 

still exists sufficient to sustain our jurisdiction. See Haig 

Berberian, Inc. v. Cannery Warehousemen, 535 F.2d 496, 498 n.l 

(9th Cir. 1976); cf. Rogers v. Fedco Freight Lines, Inc., 564 F. 

Supp. 1169, 1176 (S.D. Ohio 1983). 

Because we have continuing jurisdiction, the bankruptcy court 

continues to have residual jurisdiction sufficient to entertain 

the remand which we direct the district court to make, and to 

conduct further proceedings consistent with this opinion. In 

fact, while this appeal was pending the bankruptcy lacked the 

power to divest itself of jurisdiction over this matter. Cf. 

Gormong v. Local Union 613, 714 F.2d 1109, 1110 (11th Cir.-r983). 

2 Far from being a dead letter, as the concurring opinion 

implies, infra at , Bildisco "remains an important indicator" 

of the meaning of the Bankruptcy Code. In re Sierra Steel Corp., 

88 B.R. 314, 316 n.2 {D. Colo. 1987). This is so because, while 

section 1113 created new procedural requirements, it did not 

overrule, but in fact codified,. Bildisco's substantive standards. See,~, In re Fiber Glass Indus., Inc., 49 B.R. 202, 203 

{Bankr. N.D.N.Y. 1985); 5 Collier on Bankruptcy fl 1113.0l[i], at 

[footnote continued ••• ) 

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Appellate Case: 86-2912 Document: 01019729256 Date Filed: 03/20/1990 Page: 5 
"(b)(l) Subsequent to fil ing a petition and prior 

to filing an application seeking rejection of a collective bargaining agreement, the debtor in possession 

• • • shall--

(A) make a proposal to the authorized 

representat i ve of the employees covered by such agreement . .. which provides f or those necessary modifications in the employees [sic] benefits and protect. ions 

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; 

(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 hearing -provided for in subsection (d)(l), the [debtor- in-possession] shall meet , 

at reasonable times, with the authorized representative 

to confer i n good faith in attempting to reach mutually 

satisfactory modifications 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 [debtor-in-possession] has, prior to 

the hearing, made a proposal that fulfills t he requi r ements of subsection {b)(l); 

(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." 

[ ••• footnote continued] 

1113-24 (15th ed. 1989); Cosetti & Kirshenbaum, Rejecting 

Collective Bargaining Agreements Under Section 1113 of the 

Bankruptcy Code--Judicial Precision or Economic Reality?, 26 Duq. 

L. Rev. 181, 225 (1987); Note, Collective Bargaini ng Agreements in 

Bankruptcy Proceedings: Congressional Response to Bildisco, 1985 

u. Ill. Lo Rev. 997, 1011-13. As stated by a Tenth Circuit panel 

of which the author of the concurring opinion was a member, 

"[w]hile new procedural requirements have been imposed, the 

approach to the required balanci ng of the equities should not be 

different from the instruction provided in Bildisco." 

International Bhd. of Teamsters v. IML Freight, Inc., 789 F.2d 

1460, 1461 {-lOth Cir. 1986). 

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Appellate Case: 86-2912 Document: 01019729256 Date Filed: 03/20/1990 Page: 6 
11 U.S.C. § lll3(b)(l)(A}, (b}(2), (C). 

The legislative history of section 1113, which has been 

explored in detail elsewhere, see, ~, In re Royal Composing 

Room, Inc., 848 F.2d 345, 352-54 (2d Cir. 1988) (Feinberg, C.J., 

dissenting), cert. denied, 109 S. Ct. 1529 {1989); Rosenberg, 

Bankruptcy and the Collective Bargaining Agreement--A Brief Lesson 

in the Use of the Constitutional System of Checks and Balances, 58 

Am. Bankr. L.J. 293, 311-21 (1984), consists of little more than 

self-serving statements by opposing partisans. No committee 

reports were issued on .the statute, apparently because no agreement on content could be reached. See In re Carey Transp., Inc., 

50 B.R. 203, 206 (Bankr. S.D.N.Y. 1985), aff'd sub nom. Truck 

Drivers Local 807 v. Carey Transp., Inc., 816 F.2d 82 (2d Cir. 

1987). When legislative history is "scant and capable of differing interpretations,".we are hesitant to consider it "a reliable 

indicator of [Congressional] intent." Miller v. Commissioner, 836 

F.2d 1274, 1282-83 (lOth Cir. 1988); see also Garcia v. United 

States, 469 U.S. 70, 76 (1984}. We therefore confine our analysis 

largely to the words of the statute itself, taking into account 

other judicial interpretations. See In re Landmark Hotel & 

Casino, Inc., 78 B.R. 575, 583 (Bankr. 9th Cir. 1987), appeal 

dismissed, 872 F.2d 857 (9th Cir. 1989); Cosetti & Kirshenbaum, 

supra note 2, at 193. 

A. Effect of Proposals Which Allegedly Violate Labor Law 

The Bankruptcy Code cuts across a broad spectrum of other 

areas of law in order to afford a debtor the opportunity to re-

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Appellate Case: 86-2912 Document: 01019729256 Date Filed: 03/20/1990 Page: 7 
organize. The most pertinent example is section 1113 itself, 

which by providing for the rejection of collective bargaining 

agreements authorizes what would otherwise be a violation of 29 

U.S.C. § 158(d). We recognize the strong national policies which 

protect workers from unfair labor practices and ensure the enforceability of collective bargaining agreements. See 29 u.s.c. 

§ 158; see also International Bhd. of Teamsters v. IML Freight, 

Inc., 789 F.2d 1460, 1462 (lOth Cir. 1986}. But Chapter 11 of the 

Bankruptcy Code reflects an equally strong public policy "to 

prevent a debtor from going into liquidation, with an attendant 

loss of jobs and possible misuse of economic resources." NLRB v. 

Bildisco & Bildisco, 465 u.s. at 528. 

"[W]hen an employer is in Chapter 11, the normal rules of 

labor law cannot be applied unqualifiedly but must be balanced by 

the policfes of the Bankruptcy Code.n Gibson, The New Law on 

Rejection of Collective Bargaining Agreements in Chapter 11: An 

Analysis of 11 u.s.c. § 1113, 58 Am. Bankr. L.J. 325, 342 {1984). 

We hold that a proposal containing modifications which, if implemented, would violate labor law does not ~ se fail to satisfy 

subpart (b)(l)(A), and does not relieve the union of its duty to 

confer in good faith. There may be cases where a necessary 

proposed modification is fair and equitable to all parties, even 

though it contravenes labor law.3 

3 Without any proceedings below on the effects of the disputed 

provisions, this court would have to rely upon conjecture in order 

decide whether this is such a case~ That opinion would be merely 

advisory. See Halder v. Standard Oil Co. 1 642 F.2d 107, 109 n.l 

(5th Cir. Apr. 1981). Federal courts do not issue advisory 

opinions. FCC v. Pacifica Found., 438 U.S. 726, 735 (1978); 

[footnote continued ••. J 

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Appellate Case: 86-2912 Document: 01019729256 Date Filed: 03/20/1990 Page: 8 
Conflicts between bankruptcy and labor law policies must be 

addressed case by case. The court shall balance any illegality 

against other considerations, but shall keep in mind that there 

must be a limit to permitting proposals which would violate labor 

law, both because of the nature of various substantive provisions 

of that law and because of the nature of section 1113 itself. The 

relief available to the debtor is rejection of an existing collective bargaining agreement, so a proposed modification should not 

.make the debtor better off than it would be without any agreement. 

That is, proposals which would in and of themselves contravene 

labor law, even in the absence of a collective bargaining agreement, presumptively will not satisfy section lll3(b)(l}(A). 

Section 1113 is intended to operate expeditiously. When the 

parties are unable to arrive at mutually satisfactory modifications, th~ bankruptcy court is entitled to use its own rules and 

procedures in addressing an allegation of illegality. The court 

should not await resolution of the question by the National Labor 

Relations Board4 or conduct a full-scale trial. The bankruptcy 

[ ••• footnote continued] 

Montoya v. Postal Credit Union, 630 F.2d 745, 749 (lOth Cir. 

1980). 

4 This will put the bankruptcy court in the disfavored position 

of evaluating laws in an area outside of its expertise, but 

consideration of other areas of the law is common in bankruptcy 

courts. Recent examples include In re Lombardo Fruit & Produce, 

106 B.R. 593 (Bankro E.D. Mo. 1989), applying the Perishable 

Agricultural Commodities Act, and In re Brown, 106 B.R. 852 

(Bankr. E.D. Pa. 1989), interpreting the Truth in Lending Act. 

There also is a danger that a bankruptcy court will decide 

that a certain proposal is or is not illegal, then a subsequent 

NLRB decision will reach a different result. This risk is a 

necessary evil, though, for requiring the bankruptcy court to 

[footnote continued ••• J 

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Appellate Case: 86-2912 Document: 01019729256 Date Filed: 03/20/1990 Page: 9 
court has no authority to adjudicate unfair labor practice 

claims. 5 It should simply take them into account in determining 

whether the debtor's proposed modifications satisfy section 

1113(b)(l)(A). 

Even though the burden of persuasion will rest with the 

debtor on the substantive requirements of section 1113, the union 

will bear the burden of production with regard to several of the 

elements. In re American Provision Co., 44 B.R. 907, 909-10 

(Bankr. D. Minn. 1984). In particular, the union must come 

forward with evidence of a proposed modification's illegality, and 

the union's own good cause for rejecting the debtor's proposal on 

such grounds, before the burden of showing legality falls on the 

debtor. 

Section ll13(b)(2) states that after the proposal is made, 

"the [debtor] shall meet, at reasonable times, with the authorized 

representative to confer in good faith in attempting to reach 

mutually satisfactory modifications." We read this to require 

that both parties confer in good faith. In addition, subpart 

(c)(2) requires the union to have "good cause" for rejecting the 

proposal. These two subparts impose an obligation on the union to 

participate meaningfully in the negotiations and to explain its 

reasons for opposing the proposal. Truck Drivers Local 807 v. 

[ ••• footnote continued] 

suspend its proceedings and await a decision of the NLRB would be 

unworkable. 

5 The NLRB has exclusive jurisdiction over such matters, even 

during the reorganization process. NLRB v. Superior Forwarding, Inc., 762 F.2d 695, 698 (8th Cir. 19~8~5~)-~~N~L:R~B~v-.~A~d~a-m-s~D~e~l~i-v_e_r_y~ 

serv., 24 B.R. 589, 592 (Bankr. 9th Cir. 1982). 

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Appellate Case: 86-2912 Document: 01019729256 Date Filed: 03/20/1990 Page: 10 
Carey Transp., Inc., 816 F.2d 82, 92 (2d Cir. 1987}; see In re 

Sol-Seiff Produce Co., 82 B.R. 787, 795 (Bankr. W.D. Pa. 1988). 

Even 'if part of a proposal is unacceptable as a perceived unfair 

labor practice, the union must confer in good faith on the 

remainder of the proposal, and also must work with the debtor on 

the allegedly illegal provisions, explaining why the union deems 

them unlawful and negotiating changes or alternatives which would 

avoid the illegality.6 

B. The Requirement that the Modifications Be "Necessary" 

Just what Congress meant when it used the word "necessary," 

which appears twice in section 1113(b}(l)(A), has been a source of 

confusion. In ordinary usage, "necessary" means "cannot be done 

without" or "absolutely required."? Relying on Wheeling6 The contested wage differential issue yields a perfect 

example of the Union's default in its obligation to negotiate in 

good faith. The Union stonewalled, but had there been true 

negotiations, the parties could have worked out a system under 

which new hires, whether or not Union members, would be paid less 

than current workers, and this would have been perfectly lawful. 

See Truck Drivers Local 807 v. Carey Transp., Inc., 816 F.2d at 

85. 

We do not decide the proper consequences of a refusal to 

confer in good faith, but clearly some adverse consequence should 

befall an intransigent party. At the very least, a union's lack 

of participation should be considered when the court decides 

whether the union had good cause to reject the proposal, id. at 

92; In re Royal Composing Room, Inc., 62 B.R. 403, 407 (Bankr. 

S.D.N.Y. 1986), aff'd, 78 B.R. 671 (S.D.N.Y. 1987), aff'd, 848 

F.2d 345 (2d Cir. 1988)i cert. denied, 109 S. Ct. 1529 (1989), and 

whether the balance of equities favors rejection of the agreement. 

In re Royal Composing Room, Inc., 848 F.2d at 349. Other 

responses may also be available to the bankruptcy court. 

7 ..;..;W...;;e.;.;.b.,;:;:s,..;;t-::e;,.;;r"""'•,...;;s;:.._;T::;..,h..;.;l;;.;. r.;..d~N;;..;,.e.;;.w.;;__.;:;.I.;;.;;n....;;;t..,;;;e....;;;r..;.;n;.:.a;..,:t;..;;i;..,;o~n.;.;;a::-;;l;;.._;.D~l;:..... c;;.,t,:,.,l;;;;... o~n;.;.a~r~y 1511 ( 19 81 ) • 

But see McCulloch v. Maryland, 17 u.s. (4 Wheat.} 316, 414 (1819) 

("The word 'necessary' has not a fixed character, peculiar to 

[footnote continued •• • ] 

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Appellate Case: 86-2912 Document: 01019729256 Date Filed: 03/20/1990 Page: 11 
Pittsburgh Steel Corp. v. United Steelworkers of America, 791 F.2d 

1074, 1088 (3d Cir. 1986), the district court held that a proposal 

which went beyond the bare minimum required for the debtor's re- · 

organization did not satisfy section lll3{b)(l)(A). However, the . 

majority of cases decided since Wheeling-Pittsburgh have declined 

to interpret section lll3(b)(l)(A) as .requiring that a proposa18 

be absolutely necessary. See, ~, Truck Drivers Local 807 v. 

Carey Transp., Inc., 816 F.2d at 90; In re Big Sky Transp. Co., 

104 B.R. 333, 336 (Bankr. D. Mont. 1989): In re Texas Sheet Metals, Inc.1 90 B.R. 260,. 265 (Bankr. S.D. Tex. 1988}; In re Amherst 

Sparkle Market, Inc., 75 B.R. 847, 851 (Bankr. N.D. Ohio 1987); In 

re Walway Co., 69 B.R. 967, 973 {Bankr. E.D. Mich. 1987}. 

We agree with the latter view. The word "necessary" in subsection (b}(l)(A) does not mean absolutely necessary.9 In reAl-

[ ••• footnote continued] 

itself. It admits of all degrees of comparison • • • • A thing 

may be necessary, very necessary, absolutely or indispensably 

necessary."); Black's Law Dictionary 536 (abr. 5th ed. 1983). 

8 This appeal does not present the question of whether section 

1113(b)(l)(A) requires that each proposed modification be 

necessary to the reorganization, or merely that the proposal as a 

whole be necessary. We note only that the district court appeared 

to a~here to the former view, ~In re Mile Hi Metal Sys., Inc., 

67 B.R. ~t 117, which is clearly the majority rule. See, ~~ 

Truck Dr~vers Local 807 v. Carey Transp., Inc., 816 F.2d at 86; In 

re Valley Kitchens, Inc., 52 B.R. 493, 497 (Bankr. S.D. Ohio 

1985): In re Fiber Glass Indus., Inc., 49 B.R. 202, 206 {Bankr. 

N.D.N.Y. 1985). But see In re Royal Composing Room, Inc., 848 

F.2d at 349. 

9 Differences in formulation notwithstanding, we believe that 

the standard proposed in the concurring opinion--that 11 the debtor 

must prove that reorganization will probably fail in short order 

absent such modification," infra at --would in practical effect 

be identical to the Wheeling-Pittsburgli standard. We decline to 

adopt it for the same reasons we choose not to follow Wheeling- Pittsburgh. 

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Appellate Case: 86-2912 Document: 01019729256 Date Filed: 03/20/1990 Page: 12 
lied Delivery System Co., 49 B.R. 700, 702 (Bankr. N.D. Ohio 

1985}. We hold instead that section 1113(b)(l)(A): 

"places on the debtor the burden of proving that its 

proposal is made in good faith, and that it contains 

necessary, but not absolutely minimal, changes that will 

enable the debtor to complete the reorganization process 

successfully. 11 

Truck Drivers Local 807 v. Carey Transp., Inc., 816 F.2d at 90. 

The goal to be served by modifying the collective bargaining 

agreement, and by the entire Chapter 11 proceeding, is not simply 

a reorganization, but a successful reorganization, i.e., one from 

which the debtor emerges as an economically viable operation. 

See, ~, Truck Drivers Local 807 v. Carey Transp., Inc., 816 

F.2d at 89; In re Walway Co., 69 B.R. at 973. 

Of course, the debtor may not overreach under the guise of 

proposing necessary modifications. The proposals must be more 

than potentially help'ful; they must be directly related to the 

debtor's financial condition. 10 See In re William P. Brogna & 

Co., 64 B.R. 390, 392 (Bankr. E.D. Pa. 1986}; In re Valley 

Kitchens, Inc., 52 B.R. 493, 495-96 (Bankr. S.D. Ohio 1985); 

Gibson, supra, at 337; West, Life After Bildisco: Section 1113 

and the Duty to Bargain in Good Faith, 47 Ohio St. L.J. 65, 112-13 

(1986). 

10 Another saf~guard against overreaching is the fact that 

rejection of a collective bargaining agreement could give rise to 

a strike or other labor action which would actually decrease the 

likelihood of a successful reorganization. See NLRB v. Bildisco & 

Bi1disco, 465 U.S. at 551 (Brennan( J., concurring in part and 

dissenting in part); Rosenberg, supra, at 303; Note, Rejection of 

Collective Bargaining Agreements in Chapter 11 and the Possibility 

of Strikes: Tipping the Balance of Equities, 15 N.Y.U. Rev. L. & 

Soc. Change 513, 539-40 (1986-87)o It is therefore in the 

debtor's best interests to propose only modifications which the 

union will accept. 

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Appellate Case: 86-2912 Document: 01019729256 Date Filed: 03/20/1990 Page: 13 
C. Whether the Oral Statement Should Have Been Considered 

The district court adopted the Onion's position that the 

verbal reference to a wage differential between Union and nonUnion replacement workers made by a Mile Hi representative during 

the hearing on Mile Hi's motion, R. Vol. IV at 38, was a separate 

proposed modification. See In re Mile Hi Metal Sys., Inc., 67 

B~R. at 117; Response Brief of Appellee at 8. It is clear from 

section 1113, however, that the proposal which the bankruptcy 

court is to evaluate must be made "prior to" the hearing. 11 

u.s.c. § 1113{b}(1), (c)(l). 

"The court is to consider a debtor's proposal only 

to the extent the proposal was made prior to the commencement of the rejection hearing. It is only sensible 

that the court have a fixed point in time to look to as 

otherwise the court would be trying to deal with a 

constantly moving target as a debtor altered its 

proposal during the course of the trial." 

In re Royal Composing Room, Inc., 62 B.R. 403, 407 (Bankr. 

S.D.N.Y. 1986) (citation omitted), aff'd, 78 B.R. 671 (S.D.N.Y. 

1987}, aff'd, 848 F.2d 345 (2d Cir. 1988), cert. denied, 109 

S. Ct. 1529 (1989). Therefore, the wage differential "proposal" 

was not properly before the court. 

Of course, this does not mean that all statements made after 

the commencement of the rejection hearing must be disregarded. 

Statements explaining existing proposals are an important reason 

for having such a hearing. Only statements making new proposals 

are improper. 

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Appellate Case: 86-2912 Document: 01019729256 Date Filed: 03/20/1990 Page: 14 
III. CONCLUSION 

Because of the incorrect interpretation and application of 

the statute by the courts below, we vacate the judgment of the 

district court with directions that it vacate the order of the 

bankruptcy court and remand this case to the bankruptcy court for 

further consideration of Mile Hi's application to reject the collective bargaining agreement, and such other and further proceedings as may be appropriate in the circumstances, including the 

receipt of additional evidence and a further hearing if required. 

The bankruptcy court need not reopen specific findings and conclusions not affected by this decision. 

Judgment VACATED, and the case is REMANDED. 

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Appellate Case: 86-2912 Document: 01019729256 Date Filed: 03/20/1990 Page: 15 
No. 86-2912, SHEET METAL WORKERS' INTERNATIONAL ASSOCIATION, LOCAL 

9, v. MILE HI METAL SYSTEMS, INC. (IN RE: MILE HI METAL SYSTEMS, 

INC.) 

SEYMOUR, Circuit Judge, concurring. 

While I concur in the Court's decision to remand this case 

for further findings of fact, I write separately because I must 

take issue with the majority's construction of the term "necessary," with its discussion of illegal proposals, and with its 

suggestion that some .. adverse consequence" should befall the 

union. 

I. 

NECESSARY 

The majority correctly observes that in ordinary usage, the 

word "necessary" generally means "absolutely required." An 

initial reading of the statute, then, would suggest that a 

proposal "which provides for those necessary modifications 

that are necessary to permit the reorganization of the debtor" 

should contain only essential modifications. 11 u.s.c. § 

1113(b)(l)(A) (1988)(emphasis adde~}. The majority rejects this 

reading of the statute, and instead adopts a more lenient 

construction which would apparently permit any proposal that 

increases the likelihood of a successful reorganization. 1 

1 See Opinion at 13, following Truck Drivers Local 807 v. Carey 

Transp., Inc., 816 F.2d 82, 90 (2d Cir. 1987). See also New York 

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The majority's rationale for rejecting the common reading of 

"necessary" and following the Second Circuit's construction 

consists of conclusory statements, not arguments. The majority 

simply notes that necessary can be read a variety of ways 2 and 

then, ignoring the strong labor law policy favoring stable 

collective bargaining agreements, adds that giving the debtor more , 

leniency to cut costs at the expense of organized labor will 

better ensure that the debtor's reorganization is a successful 

one. 3 

Typographical Union No. 6 v. Royal Composing Room, Inc. (In re 

Royal Composing Room, Inc.}, 848 F.2d 345, 348 (2d Cir. 1988}, 

cert. denied, 109 S.Ct. 1529 (1989). 

2 The majority also asserts that its position is consistent 

with "the majority of cases." See Opinion at 12. I find it 

surprising that the majority so easily finds that a majority rule 

exists. Only two circuits have addressed this issue and they have 

reached opposing results. The Third Circuit adheres to a strict 

reading of "necessary," see Wheeling-Pittsburgh Steel Corp. v. 

United Steelworkers, 791 F.2d 1074 (3d Cir. 1986}, while the 

Second Circuit has adopted the more lenient approach. See Carey 

Transp., Inc., 816 F.2d 82; In re Royal Composing, 848 F.2d 345. 

Such a split contradicts the assertion that there is any kind of 

clear majority rule. 

3 See Opinion at 13. The assumption that a more lenient 

standard will improve the chances for a debtor's successful 

reorganization may be ill-founded. At least one commentator, and 

the dissenting justices in Bildisco, have concluded that such 

leniency may lead to "strikes, boycotts, [and] walk-outs" and 

hence "'decrease the prospects for a successful reorganization.'" 

Rosenberg, Bankruptcy and the Collective Bargaining Agreement--A 

Brief Lesson in the Use of the Constitutional System of Checks and 

Balances, 58 Am. Bankr. L.J. 293, 303 ( 1 984}. 

In addition, I fail to see how limiting the debtor to 

proposed modifications that "directly relate •.• [to its] 

financial condition," Opinion at 13, protects the union in any 

way; it is precisely this indiscriminate ability of debtors to 

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The fact that necessary can be construed in a number of 

different ways begs the question of how the word should be 

construed. The majority avoids addressing the problem of multiple 

interpretation, insisting instead that the Court must "confine 

[its] analysis •.• to the words of the statute itself" and must 

refrain from using a legislative history it describes as "little 

more than self-serving statements by opposing partisans." See 

Opinion at 7. 4 But when there is such a range of possible 

interpretations, to "confine" oneself to the "words of the 

statute" does not shed any light on the meaning of those words. 

As the majority so aptly notes in its opinion, Chief Justice 

Marshall once observed: 

"The word 'necessary' ••• has not a fixed character, 

peculiar to itself. It admits of all degrees of 

comparison • • • A thing may be necessary, ·very 

necessary, absolutely or indispensably necessary." 

McCulloch v. Maryland, 17 U.S. (4 Wheat.} 316, 414 (1819) 

(interpreting the "necessary and proper" clause of the 

Constitution). A strict plain language analysis of section 1113 

therefore must give way to other methods of interpretation so that 

suggest modifications designed to enhance their own financial 

position that section 1113 was designed to prevent. 

4 The majority does acknowledge that analysis of the statutory 

language should "tak[e] into account other judicial interpretations." Opinion at 7. But where, as in this case, there is such 

a clear split among the courts, some interpretive tool is needed 

to help decide from among them. 

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Congress' intent behind the use of the word necessary may be 

understood. 

Looking first at the structure of the statute for 

interpretative assistance, the repetiiion of "necessary'' in 

section 1113(b)(l)(A) emphasizes that word and thus suggests that 

Congress did not envision a lenient interpretation. Senator 

Packwood stressed this point, noting that 

"[t]he word 'nec~ssary' inserted twice into this 

provision clearly emphasizes this required aspect of the 

proposal which the debtor must offer." 

130 Cong. Rec. S8898 (daily ed. June 29, 1984).5 

At the other end of t~e spectrum, an extremely strict 

interpretation of necessary seems equally inconsistent with the 

statutory language since if all proposed modifications must be 

absolutely necessary, then the duty imposed by section lll3(b)(2) 

to negotiate in good faith becomes an impossibility. 6 An 

5 The repetition of the word necessary also may be seen as 

emphasizing "the requirement of the debtor's good faith in seeking 

to modify its existing labor contract." Century Brass Prod., Inc. 

v. International Union, United Automobile Workers (In re Century 

Brass Prod., Inc.), 795 F.2d 265, 273 (2d Cir.), cert. denied, 479 

u.s. 949 (1986). 

6 In Carey Transportation, the court pointed out that 

"[b]ecause the statute requires the debtor to negotiate 

in good faith over the proposed modifications, an 

employer who initially proposed truly minimal changes 

would have no room for good faith negotiating, while one 

who agreed to any substantive changes would be unable to 

prove that its initial proposals were minimal." 

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examination of the structure of the statute therefore does not 

clearly reveal what was meant by "necessary.'' 

The statute's legislative history, the majority correctly 

notes, consists of contradictory floor statements by members of 

the House and Senate. No explanatory Committee Reports were 

issued.7 This legislative history thus provides only murky 

insight into Congress' intent. The majority errs, however, by 

failing to move beyond this particular legislative history and 

examine the context in .which section 1113 was passed, for it is 

the context in which words are uttered or written that defines the 

parameters of their meaning.a 

Congress enacted The Bankruptcy Amendments and Federal 

Judgeship Act of 1984, of which section 1113 is a part, ·see 

Pub. L. No. 98-353, § 541, 98 Stat~ 333, 390-91 (codified at 11 

U.S.C. § 1113 (1988)), in direct response to labor concerns about 

816 F.2d at 89 {citations omitted). 

7 The majority attributes this omission to an inability to 

reach an agreement. In fact, the speed with which the bill was 

enacted accounted for the lack of Committee Reports. See Note, 

Rejection of Collective Bargaining Agreements by Chapter-11 

Debtors: The Necessity Requirement Under Section 1113, 21 

Ga. L. Rev. 967, 983 (1987); Rosenberg, 58 Am. Bankr. L.J. at 318-

19i Note, The Rejection of Collective Bargaining Agreements in 

Chapter 11 Reorganizations: The Need for Informed Judicial 

Decisions, 134 u. Pa. L. Rev. 1235, 1241-42 (1986). 

8 See McCulloch, 17 U.S. at 415 ("in [a word's] construction, 

the subject, the context, the intention of the person using them, 

are all to be taken into view"). 

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employers' tactical use of bankruptcy laws and in response to the 

Supreme Court's decision in NLRB v. Bildisco & Bildisco, 465 u.s. 

513 (1984). See 2 Collier on Bankruptc~, § ·365.03 at 365-22 (15th 

ed. 1989}. In Bildisco, the Court unanimously held that 

"the Bankruptcy Court should permit rejection of a 

collective-bargaining agreement ••• if the debtor can 

show that the collective-bargaining agreement burdens 

the estate, and that after careful scrutiny, the 

equities balance in favor of rejecting the labor 

contract." 

Id. at 526. The Court also held, by a five-to-four margin, that 

the National Labor Relations Board may not find a debtor-inpossession guilty of an unfair labor practice when it has 

"unilaterally breach(ed] a collective-bargaining agreement before 

formal Bankruptcy Court action. 11 Id. at 534. 

The Bildisco decision was handed down in February 1984, and 

it sparked extensive lobbying by representatives of both organized 

labor and management. See Ritchey, Rejection of Collective 

Bargaining Agreements: Section 1113, 4 Bankr. Dev. J. 171, 172 

(1987); Rosenberg, 58 Am. Bankr. L.J. at 312-16. Lobbying efforts 

by labor interests actually had predated Bildisco. Labor first 

aired its concerns in the fall of 1983 at a hearing before the 

Labor-Management Relations and Labor Standards Subcommittees of 

the House Education and Labor Committee. In that hearing, six. 

airline unions testified that employers, freed from the 

requirement that they be insolvent before filing for protection 

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under Chapter 11 ,9 were 11 improperly using federal bankruptcy law 

as a 'new collective bargaining weapon .'" Rosenberg, 58 Am. 

Bankr . L.J. at 312. Furthermore, companies' use of bankruptcy as 

a convenient means to reject labor contracts was a trend that 

extended far beyond the airline industry, and perhaps accounted in 

part for the 220 percent increase in business bankruptcy cases 

from 1978 to 1982. Id. at 304-05. 

The Supreme Court ruling also prompted the introduction by 

Congressman Rodino of a bill in the House, 10 and later of two 

bills in the SenateF one sponsored by Senator Packwood and the 

other by Senator Thurmond. The labor-support ed Rodino measure , 

which effectively incorporated the strict REA Express standard, 11 

passed the House . The Senate, meanwhile , was reluct a nt to choose 

between the pro-labor Packwood and the pro-management Thurmond 

9 The Bankruptcy Reform Act of 1898 required an insolvency 

showing; the Bankruptcy Reform Act of 1978 eliminated this 

requirement. 

10 See H.R. 4908, 98th Cong., 2d Sess. , 130 Cong. Rec. H809 

(daily ed. February 22, 1984). Congressman Rodino later 

introduced a modified version of the bill, and it was the modified 

version that the House passed. See H.R. 5174, 98th Cong., 2d 

Sess. , 130 Cong. Rec. Hl727 (dai~ed. March 19, 1984). 

11 See Brotherhood of Ry. Clerks v. REA Express, Inc., 523 F.2d 

164, 172 (2d Cir.), cert. denied, 423 U.S . 1017 (1975) , and 423 ·u.s. 1073 (1976): 

11 rejection . • . should be authorized only where it 

clearly appears to be the lesser of two evils and that, 

unless the agreement is rejected, the carrier will 

collapse and the employees will no longer have their 

jobs. " 

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bills, 12 and so it did not decide the collective bargaining 

agreement issue but instead left it up to the conference committee 

to solve the dilemma. What finally emerged was a compromise 

measure that "cuts a middle line" between the stricter and the 

more lenient standards for rejection. 13 2 Collier on Bankrugtcy, 

§ 365.03 at 365-26. With section 1113, Congress thus responded to 

Bildisco14 and created a standard that "is a high one although 

12 See Rosenberg, 

that the members of 

that they would not 

anyone .. ). 

58 Am. Bankr. L.J. at 318 ("it became clear 

the Senate were looking for a compromise so 

be viewed as having cast a vote for or against 

13 REA Express embodies the strictest end of the rejectionstandard spectrum, while the so-called "business judgment test," 

which applies to ordinary executory contracts, occupies the other 

end. See, ~~ In re w. & L. Assoc., Inc., 71 Bankr. 962, 966 

(Bankr. E.D. Pa. 1987), where the court explained the test: 

"We do not consider the 'business judgment test' to be a 

strict standard to meet. Rather, the test merely 

requires a showing by the • • • Debtor-in-Possession 

that rejection of the conttact will be likely to benefit 

the estate." 

14 The majority contends that I have buried Bildisco too quickly 

since section 1113 only "created new procedural requirements ... Opinion at 5 n.2. Of course, it is precisely the procedural 

requirement that the debtor "make a proposal ••• which provides 

for necessary modifications ••• necessary to permit •.• 

reorganization" that is at issue in this case. 

The majority cites to In re Fiber Glass Industries, Inc., 49 

B.R. 202, 203 (Bankr. N.D.N.Y. 1985), and to 5 Collier on 

Bankruptcy, § 1113.0l[i] at 1113-24 (15th ed. 1989), in support of 

its contention that section 1113 codified Bildisco•s substantive 

standards. I am unable to find the basis for the majoiity's 

assertion, however, since the court in Fiber Glass stated only 

that "Congress ••• adopt[edJ in substantial part the test 

ennunciated by the Supreme Court." Fiber Glass, 49 B.R. at 203 

(emphasis added). I do not believe that ,.substantive standards" 

and "in substantial part" mean the same thing. And Collier on 

Bankruptcy correctly observes that 11 the balancing of equities test 

espoused by the Supreme Court in the Bi1disco decision [was] 

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••• [it] does not rise to the level of the 'financial collapse' 

test of REA Express." Id. at 365-25. 

Viewing the plain language, the statutory structureg and the 

context together, it becomes apparent that Congress intended 

neither that "necessary" should be taken to mean absolutely 

necessary, nor that it should be interpreted as merely convenient. 

Instead, a reading of "necessary" must reflect the compromise 

achieved and must balance the pro-collective bargaining policies 

of the National Labor Relations Act with the goals of 

reorganization.l5 Any proposed modification to a collective 

incorporated by Congress in section 1113." 5 Collier on 

Bankruptcy, § 1113.0l[i] at 1113-24. See§ 1113(c)(3). Of 

course, Congress not only added the balance of the equities 

language, but also the prior requirement of "~ecessary 

modifications." It is this latter substantive standard, a 

standard not espoused by the Supreme Court in Bildisco, that this 

court has been called upon to interpret. 

Finally, the majority cites to our dicta in International 

Brotherhood of Teamsters v. IML Freight, Inc., 789 F.2d 1460, 1461 

(lOth Cir. 1986), where we also noted the recently enacted change 

in procedural requirements. However, our reference there was 

clearly to the balancing-of-equities test, not the "necessary 

modifications" requirement added by Congress. 

The majority also fails to note that in IML Freight we go on 

to emphasize that 

"the special nature of labor contracts is rooted in the 

national policy which favors collective bargaining in 

employment and that Congress has strongly cautioned the 

bankruptcy courts to be considerate of that policy." 

Id. at 1462. 

15 For one opinion analyzing the legislative history and 

interpreting section 1113 as "a pro-labor law, 11 see In re Royal 

Composing, 848 F.2d at 353 (Feinberg, C.J., dissenting}o 

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bargaining agreement should therefore be reasonably necessary; 

that is, while it need not be essential to prevent financial 

collapse, the debtor must prove that reorganization will probably 

fail in short order absent such rnodification. 16 

II. 

ILLEGAL PROPOSALS 

In its discussion of allegedly illegal proposals~ the 

majority concludes, as did the district court, that a bankruptcy 

court should consider labor law violations »case by 

case ••• [and] balance any illegality against other 

considerationst" Opinion at 9. While I agree with the language 

of this standard, I find the balancing suggested problematic. The 

majority cites B.ildisco to ~tand for the proposition that .Chapter 

11 represents a strong policy favoring flexibility for the debtor 

to reorganize. Of course, as noted above, section 1113 represents 

Congress' reaction against the Bildisco decision. Proposals 

alleged to constitute an unfair labor practice; therefore, must be 

considered in this context. 

16 I agree with the majority that the debtor bears the burden of 

proof on the necessity requirement. Opinion at 10~ see In re 

American Provision Co., 44 Bankr. 907, 909 (Bankr. D:-Minn. 1984). 

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III. 

ADVERSE CONSEQUENCE 

The majority concludes that the good faith language of 

section lll3{b)(2), read with the "good cause" language of section 

lll3(c}(2), creates an affirmative duty on the part of the union 

to participate meaningfully in negotiations. The majority further 

states that the union in this case "stonewalled" in negotiations, 

and suggests that the bankruptcy court should consider imposing 

some .. adverse consequence" on a party who so "stonewalls". See 

Opinion at 11 n~6. The majority ignores the fact that while 

management took no salary cuts, the union made numerous wage and 

other concessions prior to the Mile Hi's Chapter 11 filing. See 

rec., vol. IV, at 42-48. In my view, the suggestion that an 

"adve·rse consequence·" should befall the union in these 

circumstances is inappropriate. 

IV .. 

CONCLUSION 

The speed with which Congress enacted section 1113 has left 

courts in an awkward position. With respect to the word 

"necessary," Congress' failure to set out a clear legislative 

history through committee reports has resulted in widely divergent 

judicial interpretations of Congress' intent. 

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Even more troubling is a glaring omission: there is no 

discussion by Congress of how to deal with conflicts between 

bankruptcy and labor laws. Specifically, Congress has given 

courts little guidance on handling situations in which a union 

argues that the company-proposed modifications to a collective 

bargaining agreement would constitute an unfair labor practice. 

Congress thus has left us hanging. 

On the merits of this case, r agree with the majority that 

the case must be remanded to the bankruptcy court for further 

proceedings. Contrary to the majority, I would instruct the 

bankruptcy court to apply an interpretation of "necessary" that 

reflects Congress' rejection of the lenient Bildisco standard in 

favor of a more stringent test. In evaluating the necessity of 

the proposed modifications, the bankruptcy court should assess . 

. both the need for the suggested wage cuts for union members and 

whether alternatives existed to such cuts. Additionally, the 

court should consider whether modifications that arguably violate 

labor laws constitute ugood cause" for the union to refuse to 

negotiate or whether they undercut Mile Hi's assertion that the 

proposed changes are "fair and equitable." 

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