Opinion ID: 507087
Heading Depth: 2
Heading Rank: 2

Heading: The Necessity of Eliminating Priority.

Text: 28 Even if we were to view the proper focus to be on the single element of eliminating priority, we would conclude that Royal demonstrated that it was a necessary modification as that term was defined in Carey Transportation. The bankruptcy court did not make an explicit finding as to the necessity for eliminating priority; nevertheless, such a finding is implicit in Judge Abram's opinion, and fully is supported by the record. 29 One of the major difficulties facing Royal was the relative inflexibility it had in utilizing its work force. The company had reached the point where it was employing more workers than it needed or could afford, but it could ill afford to lay off workers because, under the union contract's priority system, it would have had to lay off its most junior workers. Unlike the ordinary situation, where one could expect the most senior workers--those with the greatest experience--to be the most productive, Royal was in exactly the opposite position. Its senior personnel were least proficient on the computer machinery that has taken over the industry, and to compete Royal needed to retain employees who lacked seniority but were most efficient on the latest equipment. See id. at 417. 30 Thus, as the bankruptcy court held, [I]n concept, the changes [in priority] are not inherently unreasonable. The union strenuously argues that concluding that priority changes are not inherently unreasonable is insufficient to justify the proposal, because it is far short of necessary. This may well be true, but we view the bankruptcy court's statement as a natural response to the union's position that any changes at all in priority were unacceptable. Thus, the bankruptcy court began with the conclusion that priority was not off-limits, because changes in priority are not inherently unreasonable. 31 But the bankruptcy court did not stop there. It went on to explain the need to eliminate, rather than merely modify, priority, in terms of Royal's need for flexibility in assignments and lay-offs. Judge Abram wrote, The Debtor will in the future be faced with enormous competitive pressure which will require it to have maximum flexibility, including with respect to utilization of its unionized labor, in order to mold and adapt in a changing business environment. Id. at 416-17. 32 The union urges that Royal showed only a need for a short-term intrusion into priority, and to depart only on its current lay-offs to result in a work force that would achieve the savings Royal said it expected from completely eliminating priority. 33 There are two flaws in this argument. First, it ignores Royal's need for long-term flexibility in order to have a truly successful reorganization, one that results in a healthy company emerging from the process. A debtor's proposal need not be limited to the bare bones relief that will keep it going. See Carey Transportation, 816 F.2d at 89 ([I]t becomes impossible to weigh necessity as to reorganization without looking into the debtor's ultimate future and estimating what the debtor needs to attain financial health.); Royal Composing Room, 62 B.R. at 418 (A debtor can live on water alone for a short time but over the long haul it needs food to sustain itself and retain its vigor.). 34 Second, it is to be expected that Royal would demonstrate the difficulties with priority by showing its current need to depart from priority. This does not mean, however, that the showing supports only the necessity of the currently proposed lay-offs. As Judge Abram noted, Projections are necessarily speculations about the future and are an art, rather than a science. Id. at 407. We will not hold Royal to show the necessity of every conceivable future use of the flexibility it now requires; it is enough that the bankruptcy court found it needs that flexibility. In an industry where rapid change has been the rule, and where the current need for intrusion into priority is well-established, the implicit finding of a general need to escape from the priority provision to help assure the future health of the company is not clearly erroneous.