Opinion ID: 3010907
Heading Depth: 1
Heading Rank: 2

Heading: standard of review

Text: Jurisdiction initially vested in the bankruptcy court pursuant to 28 U.S.C. 157(b). Jurisdiction for the district court's review of the bankruptcy court's order was conferred by 28 U.S.C. 158(a). In turn, our appellate jurisdiction rests upon 28 U.S.C. 158(d) and 1291. _________________________________________________________________ 2. GMU waived, as to Purchaser only, its members' rights to the retroactive wage increases that were to be triggered by reason of the sale of Anchor's assets to Purchaser, as well as its members' rights to the $300 Vitro stock bonus. AFU waived, as to Purchaser only, its members' rights to the $300 Sign-on Bonus. Both Unions refused to waive any rights against Anchor. 6 As taught by such cases as In re Krystal Cadillac Oldsmobile GMC Truck, Inc., 142 F.3d 631, 635 (3d Cir. 1998): In undertaking our review, we stand in the shoes of the district court, applying a clearly erroneous standard to the bankruptcy court's findings of fact and a plenary standard to that court's legal conclusions. Because this appeal involves review of the grant of summary judgment, a purely legal determination, we apply a de novo standard of review. Code 365(k): Assignment of a contract As the bankruptcy court correctly noted, in the absence of a bankruptcy filing the common law rule as to contractual assignments is exemplified by In re Washington Capital Aviation & Leasing, 156 B.R. 167, 175 n.3 (Bankr. E.D. Va. 1993)(citations omitted): A party subject to a contractually created obligation ordinarily cannot divest itself of liability by substituting another in its place without the consent of the party owed the duty. While the assignee may be entitled to perform for the original obligor, the original obligor remains ultimately liable until discharged by performance or otherwise. As the flip side of that common law rule, a novation occurs when the obligee does consent to a substitution of a new obligor for the old one, thus relieving the original obligor from its duty to perform the novated obligations (see, e.g., La Salle Nat'l Bank v. Bachmann, 108 B.R. 1013, 1016 (N.D. Ill. 1989)). In the bankruptcy context, however, Code 365(k) changes the common law rule by effecting a novation by operation of law whether or not the obligee consents to the substitution (see, e.g., Wainer v. A.J. Equities, Ltd. 984 F.2d 679, 683-84 (5th Cir. 1993) (per curiam)). But consistently with the basic concept of a contract's assignment, under which every contractual assignee takes the entire bundle of rights and obligations under the contract, such a forced 7 novation is dependent on just such a total undertaking by the assignee. Code 365(k)(emphasis added) provides: Assignment by the trustee3 to an entity of a contract or lease assumed under this section relieves the trustee and the estate from any liability for any breach of such contract or lease occurring after such assignment. Where Congress uses legal terms that have accumulated settled meaning under common law, it must be presumed (unless of course the statute dictates otherwise) that Congress meant to employ that established meaning (see, e.g., Field v. Mans, 516 U.S. 59, 69 (1995) and cases cited there). Hence we construe the terms in Code 365(k) to incorporate the general common law of assignments. In particular, we will follow the dominant consensus of common law jurisdictions, rather than the law of any particular jurisdiction (id. at 71). That dominant consensus conforms to the clear meaning of the language involved: that an assignment of a contract as such involves a commitment by the assignee to perform all obligations under the contract, as well as to acquire all rights created by the contract.4 But here neither party to the sale transaction intended a true assignment of all rights and obligations created by the GMU CBAs. In fact, Anchor and Purchaser directly manifested their intent to assign less than all of the GMU CBA obligations--for Agreement 10.01(h)(ii) expressly placed this condition (among others) on Purchaser's obligation to close the sale: any retroactive (but not prospective) payments of wage increases forfeited in prior periods under such [collective bargaining] agreements as a result of the consummation of the transactions contemplated _________________________________________________________________ 3. For purposes of this analysis, the term trustee is synonymous with debtor in possession, and hence it encompasses debtor Anchor in this case (see Code 1107). 4. See, e.g., Restatement (Second) of Contracts 328 (1981); U.C.C. 2- 210(4)(1998); 4 Arthur Linton Corbin, Corbin on Contracts 906, at 62830 (1951 & 1999 supp. by Lawrence A. Cunningham and Arthur J. Jacobson); Art Metal Constr. Co. v. Lehigh Structural Steel Co.,116 F.2d 57, 58-59 (3d Cir. 1940). 8 hereby shall have been waived or the Bankruptcy Court shall have issued an order, not subject to stay, that Seller may assign and the applicable Buyer may assume such collective bargaining agreements without any acceleration of the deferred wage increases negotiated under the current agreements. It could not have been made more clear that Purchaser had no intent, and certainly no obligation, to close on the contemplated sale transaction unless it could shed any responsibility for the payment to GMU's members of their previously-bargained-for entitlement to receive retroactive wages upon the closing. To put the matter most simply, the GMU CBA that Purchaser was willing to (and did) accept was not the same GMU CBA that Anchor had originally negotiated, and had then assumed, post-bankruptcy. Purchaser attempts to avoid that fatal flaw by telescoping the two steps of assumption and assignment, but that is wholly unpersuasive. Hence it is equally clear that no assignment of the [GMU] contract[s] occurred such as to trigger application of Code 365(k). Because the Code provision thus did not intervene to change the common law rule as to the GMU CBAs, that rule and its consequence still obtain. Having shifted fewer than all of the obligations (although it did assign all of the rights) created by the GMU CBAs, Anchor remains liable on those contractual obligations. We therefore reverse the orders below disallowing the GMU claims and remand for a proper disposition of those claims. Code 1113: Modification of CBAs There is another string to GMU's bow, woven from the same line of analysis. By committing itself to Agreement 10.01(h), Anchor has run afoul of Code 1113(f): No provision of this title shall be construed to permit a trustee to unilaterally terminate or alter any provisions of a collective bargaining agreement prior to compliance with the provisions of this section. In that respect we hold that when as here a debtor in possession (the legal equivalent of a trustee for Code 9 1113(f) purposes) binds itself contractually to obtain a change in the legal relations created by a CBA as a condition precedent to closing a sale of substantially all of the debtor's assets, that constitutes an attempt to effect an alteration of the CBA. That being so, Anchor was required to comply with the procedures set out in Code 1113--and it did not. Code 1113 and its procedures were enacted as a congressional overruling of NLRB v. Bildisco & Bildisco, 465 U.S. 513 (1984), in order to buffer CBAs against uncontrolled inroads whenever financial distress drives an employer into the bankruptcy courts in an effort to reorganize (In re Continental Airlines, 125 F.3d 120, 137 (3d Cir. 1997) and In re Roth Am., Inc., 975 F.2d 949, 956 (3d Cir. 1992), both citing Ionosphere Clubs, Inc. v. Air Line Pilots Ass'n Int'l, 922 F.2d 984, 989-90 (2d Cir. 1990)). But here Anchor and Purchaser have sought to misuse the Code in an effort to avoid the collective bargaining process that Congress deemed essential to the balance between labor and reorganizing debtors that it struck in Section 1113. In effect, the Agreement's condition precedent stripped GMU of whatever bargaining power it might otherwise have had. Union representatives in a situation such as that presented by the Agreement here have a Hobson's choice between two evils: save the members' jobs minus the retroactive wages, or don't save the jobs at all. Because Anchor's attempted application of the assumption and assignment provisions operated here to frustrate congressional intent as expressed in Section 1113, we again find that those provisions did not operate to novate the retroactive wage obligations that were the subject of the condition precedent. This serves as an alternative basis for reversing the order disallowing GMU's Retroactive Wage Claim. AFU's Bonus Claims Neither of the just-completed lines of analysis, however, operates to preserve the AFU Bonus Claims. Agreement 10.01(h)(ii) did not make the closing of the sale contingent 10 on the waiver of those claims, unlike the retroactive wage payments to GMU members that Purchasers refused to commit to contractually. Instead the assumption of the AFU CBAs by Anchor and their assignment in turn to Purchaser were unconditional so far as the buyer-seller transaction was concerned (that was the express requirement of Agreement 9.05). And that being so, nothing in the special Code 1113(f) prohibition against altering a CBA without full compliance with the Code 1113 procedures operated to trump the Code 365(k) change of the common law rule as to all true assumption-and-assignment situations. That being the case, there remains the argument that Anchor's non-adherence to the Code 1113 route as to the AFU CBAs leaves it liable despite Code 365(k)'s plain language. Code 1113(a) reads: The debtor in possession...may assume or reject a collective bargaining agreement only in accordance with the provisions of this section. Accordingly, the argument goes, Code 1113 and not 365 is the governing provision here. That contention rests on an extraordinarily thin reed: that the mere presence of the word assume in Code 1113(a) requires the application of that provision even where no modification or rejection of a CBA has occurred. But that argument is at odds with the plain reading of Code 1113, which (like the specific prohibition in Code 1113(f)) speaks only to what must be done by a party in bankruptcy to change--or to free itself entirely from--the terms of a CBA (Wien Air Alaska, Inc. v. Bachner, 865 F.2d 1106, 1111 n.5 (9th Cir. 1989); Mass. Air Conditioning & Heating Corp. v. McCoy, 196 B.R. 659, 662-63 (D. Mass. 1996)). It is surely no accident that Code 1113 is entitled Rejection of collective bargaining agreements, although we of course recognize that such legislative captions are not part of the statute itself. We are persuaded that Code 365 and not Code 1113 is the applicable provision in the circumstances here. So AFU's effort to give up a portion of its members' CBA rights (the $300 Sign-on Bonus) against Purchaser at the latter's request, while simultaneously reserving all of the AFU Bonus Claims against Anchor, fails. Anchor's outright 11 and unconditional assignment of the AFU CBAs to Purchaser triggered the statutory novation effected by Code 365(k).