National Labor Relations Board v. Bildisco & Bildisco
465 U.S. 513 (1984)
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Rule of Law:
A debtor-in-possession in Chapter 11 bankruptcy may reject a collective bargaining agreement if it burdens the estate and the equities favor rejection. Furthermore, a debtor-in-possession does not commit an unfair labor practice under the National Labor Relations Act (NLRA) by unilaterally modifying the agreement after filing for bankruptcy but before formal court-approved rejection.
Facts:
- Bildisco and Bildisco, a building supplies distributor, was party to a three-year collective bargaining agreement (CBA) with the Teamsters Union, covering 40-45% of its workforce.
- The CBA was set to expire on April 30, 1982, and stipulated it would remain binding even in the event of bankruptcy.
- Beginning in January 1980, Bildisco failed to pay health and pension benefits and remit collected union dues as required by the CBA.
- On April 14, 1980, Bildisco filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code.
- After filing the petition, in May 1980, Bildisco refused to pay wage increases mandated by the CBA.
Procedural Posture:
- Bildisco and Bildisco filed a voluntary petition for Chapter 11 reorganization in the U.S. Bankruptcy Court.
- The Union filed unfair labor practice charges with the National Labor Relations Board (NLRB), which found Bildisco in violation of the NLRA and ordered it to honor the CBA.
- Bildisco requested permission from the Bankruptcy Court to reject the CBA, which the court granted.
- The U.S. District Court affirmed the Bankruptcy Court's order allowing rejection.
- The NLRB petitioned the U.S. Court of Appeals for the Third Circuit to enforce its order, and the Union appealed the District Court's decision to the same court.
- The Court of Appeals consolidated the cases, held that a debtor-in-possession does not commit an unfair labor practice by modifying the CBA before rejection, and established a 'balancing of the equities' test for rejection.
- The U.S. Supreme Court granted certiorari to resolve conflicts among the circuit courts.
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Issue:
Does a debtor-in-possession in a Chapter 11 bankruptcy commit an unfair labor practice under the National Labor Relations Act by unilaterally modifying a collective bargaining agreement before the bankruptcy court has authorized its rejection?
Opinions:
Majority - Justice Rehnquist
No. A debtor-in-possession does not commit an unfair labor practice by unilaterally modifying a collective bargaining agreement after filing a bankruptcy petition but before court approval of rejection. Upon filing a petition, the CBA becomes an executory contract that is not enforceable against the debtor-in-possession until it is formally assumed. Therefore, the modification procedures of NLRA § 8(d), which apply to enforceable contracts, are not applicable. Enforcing the CBA via an unfair labor practice charge would directly conflict with the Bankruptcy Code's purpose of providing debtors with the flexibility and 'breathing space' needed for a successful reorganization. The Court also held that the appropriate standard for rejecting a CBA is a balancing of the equities test, which is more stringent than the 'business judgment' rule but less stringent than requiring proof that rejection is necessary to prevent liquidation.
Concurring-in-part-and-dissenting-in-part - Justice Brennan
Yes. A debtor-in-possession commits an unfair labor practice by unilaterally altering the terms of an existing collective bargaining agreement before a Bankruptcy Court has authorized its rejection. While agreeing with the majority's 'balancing of the equities' test for rejection, the dissent argues that the majority fails to accommodate the policies of the NLRA. The filing of a bankruptcy petition should not render NLRA § 8(d) inapplicable, as unilateral modifications to a CBA are a primary cause of industrial strife, which is antithetical to the goals of both the NLRA and a successful reorganization. The Court should have harmonized the two statutes rather than allowing the Bankruptcy Code's general policies to override the specific labor protections of the NLRA.
Analysis:
This decision significantly shifted the balance of power in bankruptcy proceedings from unions to debtor companies, prioritizing the rehabilitative goals of the Bankruptcy Code over the labor stability objectives of the NLRA. By allowing companies to unilaterally alter labor contracts upon filing for bankruptcy, the ruling gave debtors substantial leverage in negotiations. The decision was highly controversial and prompted a swift legislative response; in 1984, Congress enacted Section 1113 of the Bankruptcy Code, which overruled Bildisco by establishing a specific, more rigorous, and union-protective process that a debtor must follow before it can reject a collective bargaining agreement.
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