Court Opinion

ID: 9480155
Source: CourtListenerOpinion
Date Created: 2023-08-05 07:39:58.81953+00
Date Added: 2024-06-11T17:47:31.252865
License: Public Domain

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)(1)(A) (1988) (emphasis added). 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
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 ways2 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
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 op*895posing partisans.” See Opinion at 890.4 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, 4 L.Ed. 579 (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 Congress’ intent behind the use of the word necessary may be understood.
Looking first at the structure of the statute for interpretative assistance, the repetition of “necessary” in section 1113(b)(1)(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 ‘necessary’ 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 the 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 1113(b)(2) to negotiate in good faith becomes an impossibility.6 An 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.8
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 employers’ tactical use of bankruptcy laws and in response to the Supreme Court’s decision in NLRB v. Bildisco & Bildisco, 465 U.S. 513, 104 S.Ct. 1188, 79 L.Ed.2d 482 (1984). See 2 Collier on Bankruptcy, *896§ 365.03 at 365-22 (15th ed. 1989). In Bil-disco, 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, 104 S.Ct. at 1196. The Court also held, by a five-to-four margin, that the National Labor Relations Board may not find a debtor-in-possession guilty of an unfair labor practice when it has “unilaterally breach[ed] a collective-bargaining agreement before formal Bankruptcy Court action.” Id. at 534, 104 S.Ct. at 1200.
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 under Chapter 11,9 were “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 Senate, one sponsored by Senator Packwood and the other by Senator Thurmond. The labor-supported Rodino measure, which effectively incorporated the strict REA Express standard,11 passed the House. The Senate, meanwhile, was reluctant to choose between the pro-labor Pack-wood and the pro-management Thurmond 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 Bankruptcy, § 365.03 at 365-26. With section 1113, Congress thus responded to Bildisco 14 and created a stan*897dard that “is a high one although ... [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 structure, 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.15 Any proposed modification to a collective 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 modification.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 considerations.” Opinion at 891. While I agree with the language of this standard, I find the balancing suggested problematic. The majority cites Bildis-co to stand 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 Bil-disco decision. Proposals alleged to constitute an unfair labor practice, therefore, must be considered in this context.
III.
ADVERSE CONSEQUENCE
The majority concludes that the good faith language of section 1113(b)(2), read with the “good cause” language of section 1113(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 892 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 sugges*898tion that an “adverse 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.
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, I 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 “good cause” for the union to refuse to negotiate or whether they undercut Mile Hi’s assertion that the proposed changes are “fair and equitable.”

. See Opinion at 893, following Truck Drivers Local 807 v. Carey Transp., Inc., 816 F.2d 82, 90 (2d Cir.1987). See also New York 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, — U.S. -, 109 S.Ct. 1529, 103 L.Ed.2d 834 (1989).

. The majority also asserts that its position is consistent with "the majority of cases.” See Opinion at 892. 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.

.See Opinion at 893. 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 (1984).
In addition, I fail to see how limiting the debtor to proposed modifications that "directly relate ... [to its] financial condition,” Opinion at 893, protects the union in any way; it is precisely this indiscriminate ability of debtors to suggest modifications designed to enhance their own financial position that section 1113 was designed to prevent.

. The majority does acknowledge that analysis of the statutory language should "tak[e] into account other judicial interpretations.” Opinion at 890. 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.

. 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, 107 S.Ct. 433, 93 L.Ed.2d 383 (1986).

. In Carey Transportation, the court pointed out that
“[bjecause 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.”
816 F.2d at 89 (citations omitted).

. 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 318-19; 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).

. 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”).

. The Bankruptcy Reform Act of 1898 required an insolvency showing; the Bankruptcy Reform Act of 1978 eliminated this requirement.

. 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. H1727 (daily ed. March 19, 1984).

. See Brotherhood of Ry. Clerks v. REA Express, Inc., 523 F.2d 164, 172 (2d Cir.), cert. denied, 423 U.S. 1017, 96 S.Ct. 451, 46 L.Ed.2d 388 (1975), and 423 U.S. 1073, 96 S.Ct. 855, 47 L.Ed.2d 82 (1976):
"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.”

. See Rosenberg, 58 Am.Bankr.L.J. at 318 ("it became clear that the members of the Senate were looking for a compromise so that they would not be viewed as having cast a vote for or against anyone”).

. REA Express embodies the strictest end of the rejection-standard spectrum, while the so-called "business judgment test," which applies to ordinary executory contracts, occupies the other end. See, e.g., In re W. & L. Assoc., Inc., 71 B.R. 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 contract will be likely to benefit the estate."

. 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. *8971985), and to 5 Collier on Bankruptcy, § 1113.01[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 majority’s assertion, however, since the court in Fiber Glass stated only that "Congress ... adopt[ed] 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 "the balancing of equities test espoused by the Supreme Court in the Bildisco decision [was] incorporated by Congress in section 1113.” 5 Collier on Bankruptcy, § 1113.01 [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 “necessary 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 (10th 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.

. For one opinion analyzing the legislative history and interpreting section 1113 as "a pro-labor law,” see In re Royal Composing, 848 F.2d at 353 (Feinberg, C.J., dissenting).

. I agree with the majority that the debtor bears the burden of proof on the necessity requirement. Opinion at 891; see In re American Provision Co., 44 B.R. 907, 909 (Bankr.D.Minn. 1984).