American Flint Glass Workers Union v. Anchor Resolution Corp. , 197 F.3d 76 ( 1999 )

Opinions of the United
1999 Decisions States Court of Appeals
for the Third Circuit
11-24-1999
In Re: Amer. Flint Glass Wrkrs Union v. Anchor
Resol. Corp.
Precedential or Non-Precedential:
Docket 99-5291, 99-5292
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Recommended Citation
"In Re: Amer. Flint Glass Wrkrs Union v. Anchor Resol. Corp." (1999). 1999 Decisions. Paper 309.
http://digitalcommons.law.villanova.edu/thirdcircuit_1999/309
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Filed November 24, 1999
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
Nos. 99-5291 and 99-5292
AMERICAN FLINT GLASS WORKERS UNION,
Appellant in 99-5291
v.
ANCHOR RESOLUTION CORP., et al.,
Debtor-Appellee.
GLASS, MOLDERS, POTTERY, PLASTICS & ALLIED
WORKERS INTERNATIONAL UNION,
Appellant in 99-5292
v.
ANCHOR RESOLUTION CORP., et al.,
Debtor-Appellee.
APPEAL FROM THE
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
DISTRICT JUDGE: Honorable Joseph J. Farnan, Jr.
(D.C. Civil Action No. 98-cv-00167)
Argued September 10, 1999
BEFORE: ROTH and WEIS, Circuit Judges, and
SHADUR,* District Judge
(Filed November 24, 1999)
_________________________________________________________________
* Honorable Milton I. Shadur, Senior United States District Judge for the
Northern District of Illinois, sitting by designation.
Laura Davis Jones, Esquire
James L. Patton, Jr., Esquire
Young, Conaway, Stargatt &
Taylor LLP
11th Floor-Rodney Square North
P.O. Box 391
Wilmington, DE 19899-0391
Kenneth Pasquale, Esquire
(ARGUED)
Robin E. Keller, Esquire
Mark Wintner, Esquire
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038
Attorneys for Debtor-Appellee
Anchor Resolution Corp.
Theodore J. Tacconelli, Esquire
Ferry & Joseph, P.A.
824 Market Street, Suite 904
P.O. Box 1351
Wilmington, DE 19899
Louis J. Yoppolo, Esquire (ARGUED)
Shindler, Neff, Holmes &
Schlageter, LLP
1200 Edison Plaza
300 Madison Avenue
Toledo, OH 43604
Attorneys for Appellant
American Flint Glass Workers Union
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Erik C. Grandell, Esquire
Tomar, Simonoff, Adourian, O'Brien,
Kaplan Jacoby, & Graziano
Mellon Bank Center
919 Market Street, Suite 1701
Wilmington, DE 19801
Douglas S. Stanger, Esquire
(ARGUED)
Carl S. Yaller, Esquire
James S. Weiss, Esquire
Tomar, Simonoff, Adourian, O'Brien,
Kaplan Jacoby, & Graziano
2111 New Road
Northfield, NJ 08225
Attorneys for Appellant
Glass, Molders, Pottery, Plastics &
Allied Workers International Union
Patricia A. Staiano, Esquire
Unites States Trustees
601 Walnut Street
Suite 950 West
Philadelphia, PA 19106
OPINION OF THE COURT
SHADUR, Senior District Judge:
Both of these appeals stem from the March 24, 1999
order of the United States District Court for the District of
Delaware ("District Court Order," 231 B.R. 559 (D. Del.
1999)) affirming a February 4, 1998 bankruptcy court order
("Bankruptcy Court Order," 218 B.R. 330 (Bankr. D. Del.
1998)). Both Glass, Molders, Pottery, Plastics & Allied
Workers International Union ("GMU") and American Flint
Glass Workers Union ("AFU") (collectively "Unions")
challenge the district court's affirmance of the bankruptcy
court's grant of summary judgment in favor of Anchor
Resolution Corporation ("Anchor"), rejecting bankruptcy
claims filed against Anchor by Unions.
3
Unions' claims arose out of four collective bargaining
agreements ("CBAs")--two with GMU and two with AFU--
that Anchor, as debtor in possession under Chapter 11,
had assumed and then had purported to "assign," pursuant
to a sale of substantially all its assets, to Consumers
Packaging, Inc. ("Consumers") and Owens-Brockway Glass
Container Inc. (collectively "Purchaser"). Consumers in turn
assigned all of its rights and obligations arising out of the
purchase (including its interest in the CBAs) to a newly-
formed wholly-owned subsidiary that then changed its
name to Anchor Glass Container Corp. ("New Anchor").
Both the bankruptcy court and the district court found
that the sale of Anchor's assets to Purchaser was an
assumption by Anchor of all four CBAs, coupled with a
simultaneous assignment of the rights and obligations
under the CBAs to Purchaser (218 B.R. at 336; 231 B.R. at
563). In addition, both courts below held that upon the
February 5, 1997 closing of that sale, Code 365(k)1 served
to relieve Anchor from all liability arising out of the CBAs,
thus barring both Unions' claims. Finally, both courts held
that no "modification" of the CBAs occurred to trigger
application of Code 1113.
Because Anchor did not in fact assign the GMU CBAs
cum onere (as is essential to a true assignment), we reverse
as to that Union and remand for an order allowing its
claims and for a determination of the priority of payment
that such claims shall receive. As to AFU, however, the
valid assignment of its CBAs requires affirmance.
Facts
In March 1996 Anchor and GMU negotiated two CBAs
covering GMU's bargaining unit for the three-year period
from April 1, 1996 through March 31, 1999. Effective
September 1, 1996 Anchor and AFU similarly negotiated
two three-year CBAs covering AFU's bargaining unit. Both
sets of CBAs included current concessions to Anchor in
recognition of, and to assist it in surviving in the face of, its
shaky financial condition.
_________________________________________________________________
1. All references to Bankruptcy Code provisions will take the form "Code
--," omitting repeated reference to Title 11.
4
In its CBAs, GMU agreed to certain wage cuts in
exchange for deferred supplemental payments or possible
payments to be made by Anchor to certain employees over
the course of the CBAs' three-year terms. Those
commitments by Anchor comprised (1) the reinstatement
and retroactive payment, if Anchor were to be sold, merged
or transferred during the term of the CBAs, of wage
increases that had been given up in the first two years of
the CBAs ("GMU Retroactive Wage Claim"), (2) a $700 one-
time payment to employees on the payroll as of April 1,
1996 and (3) a $300 Vitro stock bonus. In the aggregate,
the value of those commitments came to $6,284,896.
As for AFU, it agreed to similar wage cuts in return for
two supplemental payment obligations (together "AFU
Bonus Claims"): (1) a $300 bonus (the "$300 Sign-on
Bonus") and (2) further bonuses ranging from $450 to
$650, depending on the job category of the particular
employee. Those items had an aggregate value of $323,000.
Despite those concessions by the Unions, soon after
negotiating the CBAs--on September 13, 1996--Anchor
filed its voluntary bankruptcy petition under Chapter 11 (it
had then signed a letter of intent for the sale of
substantially all of its assets to competitor Ball-Foster
Glass Container Co., L.L.C. ("Ball-Foster")). Anchor and
Ball-Foster then negotiated and signed an October 4, 1996
asset purchase agreement, which was expressly made
subject to higher and better offers.
In conjunction with its motion for the bankruptcy court's
approval of the Ball-Foster agreement, Anchor filed a notice
of assumption and assignment of certain executory
contracts on November 1, 1996 ("Notice"). That Notice
announced a November 22, 1996 hearing date to consider
approval of the asset sale agreement, including Anchor's
assumption and assignment of the contracts listed in the
Notice ("Sale Hearing"). Anchor listed all four CBAs in the
Notice, which set an objection deadline of November 15 (one
week before the Sale Hearing). In addition the Notice
provided that "the Sale Hearing may be adjourned from
time to time without further notice other than an
announcement in open court of the adjourned date or dates
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at the originally scheduled sale hearing or any adjourned
dates."
Because a better offer did come in, the Ball-Foster deal
did not go forward. Instead, on December 20, 1996 the
bankruptcy court entered its "Sale Order," approving
Purchaser's bid as documented in a December 18, 1996
asset purchase agreement ("Agreement") between Anchor
and Purchaser. Neither Union objected at that point to the
sale of substantially all of Anchor's assets to Purchaser,
including Anchor's proposed assumption and assignment of
the CBAs.
On January 31, 1997 the bankruptcy court entered an
order, assertedly under the auspices of Code 365,
approving Anchor's assumption and assignment of the
CBAs to Purchaser and providing that Anchor would
thereby be relieved from further liability under the CBAs.
Anchor and Purchaser closed the asset sale transaction on
February 5, 1997 after each of GMU and AFU agreed to
waive--but only against Purchaser--certain of its rights
under the CBAs.2 After the closing of the sale neither
Anchor nor Purchaser made any of the supplemental
payments called for by the CBAs. New Anchor, however,
promised a $.40 per hour wage increase. Unions filed
claims against Anchor's bankruptcy estate for the value of
the CBA-specified supplemental payments, and both lower
courts disallowed Unions' claims.
Standard of Review
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.
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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
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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 628-
30 (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).
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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
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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).
Conclusion
We reverse the District Court Order affirming the
Bankruptcy Court Order as to GMU and remand for a
determination of the priority of payment to which GMU's
claims--fully preserved against Anchor--are entitled. As to
the AFU Bonus Claims, however, we affirm the District
Court Order.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
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