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Wheeling-Pittsburgh Steel Corp. v. United Steelworkers of America

May 28, 1986

WHEELING-PITTSBURGH STEEL CORPORATION, DEBTOR-IN-POSSESSION,
v.
UNITED STEELWORKERS OF AMERICA, AFL-CIO-CLC, APPELLANT



On Appeal from the United States District Court for the Western District of Pennsylvania (D.C. Civil No. 85-1660).

Author: Sloviter

Before: ADAMS, SLOVITER, and MANSMANN, Circuit Judges.

SLOVITER, Circuit Judge.

I.

ISSUE

In NLRB v. Bildisco & Bildisco, 465 U.S. 513, 79 L. Ed. 2d 482, 104 S. Ct. 1188 (1984), the Supreme Court held that the debtor-in-possession may reject its collective bargaining agreements, subject to the approval of the bankruptcy court which must balance the equities of the affected parties. Thereafter, following considerable debate and controversy, Congress enacted section 1113 of the Bankruptcy Code, 11 U.S.C. ยง 1113 (Supp. II 1984), which establishes the procedures to be followed and the conditions that must be met before the bankruptcy court may authorize such a rejection. On May 31, 1985, Wheeling-Pittsburgh Steel Corp., a debtor-in-possession under Chapter 11 of the Bankruptcy Code, sought authorization in the bankruptcy court to reject its collective bargaining agreements with the United Steelworkers of America, AFL-CIO-CLC ("Union" or "Steelworkers"). After a four-day hearing, the bankruptcy court authorized Wheeling-Pittsburgh to do so, finding that it had satisfied the requirements of the statute. The district court affirmed that order, and the Union appeals. Before us are important matters of first impression for an appellate court regarding the interpretation of the statute. Amici Curiae briefs have been filed by the American Federation of Labor and Congress of Industrial Organizations, and the Glass, Pottery, Plastics and Allied Workers International Union, AFL-CIO-CLC.

II.

FACTUAL BACKGROUND

Wheeling-Pittsburgh is the seventh largest steel manufacturing corporation in the United States. In the late 1970's, Wheeling Pittsburgh began a major capital investment program to become one of the most modern and efficient major United States producers. The price of such efficiency was heavy borrowing. Wheeling-Pittsburgh's long-term debt increased from $170 million at the end of 1979 to $527 million at the end of 1984. A 1982 recession adversely affected the steel industry. The Company's losses in 1982, 1983 and 1984 and the need to pay principal and interest due on the modernization loans substantially weakened its financial position.

For some years, Wheeling-Pittsburgh and other major steel corporations, organized as the "Steel Company Coordinating Committee", have engaged in coordinated collective bargaining with the Steelworkers, and, as a result, their workers' wages and benefits were generally the same. Wheeling-Pittsburgh's average gross labor costs (including wages, benefits, current pension costs and other benefits for retirees, and payroll taxes) under the 1980 collective bargaining agreement were about $25 per hour. Because of its financial problem, Wheeling-Pittsburgh asked the Union for concessions twice in 1982. The April concession consisted of a $1.65 an hour reduction in labor costs in return for entitlement to preferred stock which each employee could redeem when s/he quit, died or retired.

The December 1982 concession was made as part of a new three and a half year collective bargaining agreement scheduled to expire on July 31, 1986. It is that contract that is the subject of the dispute at issue before us. The Union agreed to concessions that reduced the average labor cost to $18.60 an hour at its lowest point. In return, Wheeling-Pittsburgh agreed to a profit sharing plan. The new agreement provided for gradual restoration of the Union concessions so that the average labor cost per hour would return to $25. By the end of 1984, the average labor cost had been restored to $21.40, and further restorations were due in 1985.

At the end of 1984, Wheeling-Pittsburgh again asked for concessions, this time the cancellation of all scheduled restorations. The Union agreed to defer restorations while its accounting firm, Arthur Young & Co., analyzed Wheeling-Pittsburgh's financial reports to determine the extent of its financial distress. When Arthur Young confirmed Wheeling-Pittsburgh's condition, the Union agreed to defer restorations indefinitely. In mid-January 1985, Wheeling-Pittsburgh asked the Union for a fourth reduction in labor cost. The Union, however, refused to make further concessions until Wheeling-Pittsburgh gained concessions from its lenders, who had made none to that date.

After mediation efforts, Wheeling-Pittsburgh issued a restructuring proposal on March 8, 1985, which sought concessions from the Union, the lenders, and shareholders. It asked the Union for a labor cost of approximately $19 for three years and cancellation of the restorations, with the employees to receive preferred or common stock in Wheeling-Pittsburgh in return. Wheeling-Pittsburgh asked all of its lenders for a 100% moratorium on principal payments for 1985-1986, and some of its lenders for an additional 50% moratorium for 1987-1989, and/or reductions in interest, with the lenders to be given common stock in return, Significantly, the Company did not propose pledging its current assets for past debts. Wheeling-Pittsburgh also proposed a continued suspension of dividends to its preferred stockholders, elimination of preemptive rights for its common stockholders, and dilution of their present holdings to the extent necessary to compensate labor and lenders for their sacrifices.

The Union's counter-offer to Wheeling-Pittsburgh called for a two-year contract with labor costs of $19.50 the first year and $20.00 the second year; cancellation of the scheduled restorations; common stock as compensation; the right to appoint a member of Wheeling-Pittsburgh's Board of Directors; and Wheeling-Pittsburgh's promise not to pledge its current assets to the banks to secure the old debt. The Union believed the current assets were the "life preserver" needed to keep the Company and the employees' jobs afloat in the event of economic difficulties.

The lenders' counter-proposal to Wheeling-Pittsburgh called for defendant of about $210 million in outstanding indebtedness; $40 million in additional credit over the next four years; and Wheeling-Pittsburgh's pledging its current accounts receivable and inventory (about $300 million in value) to secure the entire debt. Neither the Union nor the lenders were willing to compromise on their respective positions concerning the pledge of current assets to secure the old loans, and the restructuring proposal collapsed. Wheeling-Pittsburgh filed a Chapter 11 petition for bankruptcy on April 16, 1985.

Thereafter, on May 9, 1985, Wheeling-Pittsburgh presented its proposal to the Union for modifying the current collective bargaining agreement. Wheeling-Pittsburgh proposed a five-year contract which included the following items: an average labor cost not to exceed $15.20 an hour; a reduction in medical and insurance benefits, as part of the employment cost adjustment; elimination of supplemental unemployment benefit guarantees for employees with 20 or more years' service and cost-of-living adjustments; elimination of various other prior obligations, including payments of the pension plan, redemption fund and cash dividends on preferred stock; and elimination of the profit sharing plan. These proposals were accompanied by five-year forecasts far more pessimistic than those that had accompanied the restructuring proposal the Company had offered two months earlier in March, before the bankruptcy.

The Union hired Lazard Ferres & Co. and Arthur Young & Co. to assist it in evaluating the Wheeling-Pittsburgh proposal and formulating a response. The financial advisors sought certain financial information from Wheeling-Pittsburgh, which provided some, but not all, of the requested information. On May 24, Wheeling-Pittsburgh announced it would provide no additional information, demanded the Union's response by May 30, and threatened to seek authorization to reject the agreement. When the Union replied that it could not respond until it had all the requested information, Wheeling-Pittsburgh filed its application with the bankruptcy court for authorization to reject the collective bargaining agreement on May 31, 1985.

The bankruptcy court held a hearing on Wheeling-Pittsburgh's motion from June 17-21, 1985. On July 17, 1985, it issued a decision authorizing Wheeling-Pittsburgh's motion from June 17-21, 1985. On July 17, 1985, it issued a decision authorizing Wheeling-Pittsburgh to reject the agreement. Wheeling-Pittsburgh did so, and announced that it would institute a $17.50 labor cost, effective immediately, and make various other changes. In response, the Union commenced a strike on July 21, 1985. It also appealed the decision of the bankruptcy court to the District Court for the Western District of Pennsylvania, which affirmed the bankruptcy court decision on August 28, 1985. The Union filed a timely appeal to this court.

On October 15, 1985, Wheeling-Pittsburgh and the Steelworkers reached a settlement which ended the strike. The settlement, which we need not describe in detail, included, inter alia, a new collective bargaining agreement providing for a labor cost of $18.00 per hour, to be effective "up to and including 10 days following the entry of an order confirming a plan of reorganization." Some of the other features of the agreement were a price escalation clause under which a labor cost bonus will be paid in relationship to increases in Wheeling-Pittsburgh's product prices; a pension relief program to aid retirees and beneficiaries in the likely event the current pension plan is terminated; and an employee buy-out protection plan for employees whose jobs have been permanently terminated as a result or reorganization. The Union received the right to "nominate" a member of Wheeling-Pittsburgh's Board of Directors, and several joint management-union committees were created. The settlement agreement also resolved various disagreements between Wheeling-Pittsburgh and the Union arising out of Wheeling-Pittsburgh's petition for bankruptcy and rejection of the 1983 collective bargaining contract and the resulting strike. Most significantly for present purposes, the settlement provided that if the Union were successful in reversing the courts' order authorizing rejection of the collective bargaining agreement, it would assert claims for lost pay of plant guards and others who worked during the strike.

The settlement agreement prompted the principal bank creditors to raise the issue of mootness, and, at their request, we permitted them to take discovery related to this issue during the pendency of the appeal. At oral argument, counsel for the principal bank creditors conceded that the appeal is not moot, and sought for permission to withdraw the request for dismissal on that ground. Since we have an independent obligation to determine whether there is an actual case or controversy before us, we consider that issue first, before turning to the merits.

III.

MOOTNESS

It has never been disputed that the settlement agreement between Wheeling-Pittsburgh and the Union which resolved the many outstanding issues between the parties, large and small, left unresolved the issue of wages paid to plant guards during the period of the strike from July 21, 1985 to October 15, 1985. When Wheeling-Pittsburgh rescinded the 1983 collective bargaining agreement and the other employees went out on strike, the plant guards had continued to work to protect the plants, as they were required to do under the old agreement. Wheeling-Pittsburgh, however, paid them at the new unilaterally instituted wage scale of $17.50 rather than the old rate.

During the negotiations to settle the strike, the Union sought full reimbursement for the difference in the guards' pay between that paid during the work stoppage period and that which would have been paid under the old bargained rate, an amount the parties agree amounts to approximately $146,000. It appears from the recent discovery that the parties attempted, but were unable, to settle the plant guard payment issue during the negotiations. Therefore, they agreed to disagree. The language in the settlement agreement provides:

In the event that the USWA is successful in reversing the order authorizing rejection of its Agreements, it will only assert expenses of administration claims for lost pay for plant guards or other employees who worked during the period July 21, 1985 through the settlement date.

Bank Creditors' Brief, Exhibit A, Appendix G at 4.

When the Bank creditors were asserting their mootness argument, they argued that "[i]t defies rational belief that -- having negotiated a contract that, based on a conservative estimate of hours likely to be worked, deals with some $360 million in pay and benefits . . . the USWA and Wheeling-Pittsburgh were unable to compromise on the priority status of $146,000 of plant guard claims." Bank Creditors' Supplemental Brief on Mootness at 13-14. They argued that this single issue was purposefully left unresolved by Wheeling-Pittsburgh and the Union solely to allow continuation of the appeal, and therefore the plant guards issue is a "mere contrivance" rather than an actual controversy.

All parties acknowledge that if Wheeling-Pittsburgh does not prevail on appeal, it will be required to pay the $146,000 as an administrative expense. That sum is not de minimis for any company, and particularly not for a bankrupt one. Moreover, discovery showed that even after the settlement, and while this appeal was pending, the Union's counsel told the Company's counsel that if an offer were made in the full amount in dispute, the Union would accept it, even if it meant this appeal would become moot. The bank creditors, based on these facts and particularly the fact that Wheeling-Pittsburgh has not made and asserts it will not make an offer of any money to the Union in settlement of the guards' issue, concluded that they could not press the mootness issue.

A case becomes moot when "there is no subject-matter on which the judgment of the court can operate." Ex parte Baez, 177 U.S. 378, 390, 44 L. Ed. 813, 20 S. Ct. 673 (1900). So long as a controversy is "definite and concrete, touching the legal relations of parties having adverse legal interests" and is "real and substantial . . . admitting of specific relief through a decree of a conclusive character," it is justiciable rather than moot. Aetna Life Insurance Co. v. Haworth, 300 U.S. 227, 240-41, 81 L. Ed. 617, 57 S. Ct. 461 (1937). Because the validity of Wheeling-Pittsburgh's rejection of the collective bargaining agreement in July 1985 affects when and how much of the $146,000 the guards will receive, this case is not moot.

The Supreme Court has long held that the settling of a controversy does not render moot an unsettled sub issue in the controversy. For example, in Powell v. McCormack, 395 U.S. 486, 495-500, 23 L. Ed. 2d 491, 89 S. Ct. 1944 (1969), the Court held that the seating of Congressman Powell as a member of the 91st Congress did not make moot his suit against the House of Representatives for failure to seat him in the 90th Congress because, inter alia, his back salary was still at issue. See also Liner v. Jafco, Inc., 375 U.S. 301, 305-06, 11 L. Ed. 2d 347, 84 S. Ct. 391 (1964).

Although the Union has candidly admitted that it has an interest in securing a ruling on the merits of the appeal above and beyond the satisfaction of the plant guards' claims, its motivating interest in securing a precedent does not render the case nonjusticiable as long as there are, in fact, stakes at issue. Two recent cases illustrate this point. In Havens Realty Corp. v. Coleman, 455 U.S. 363, 71 L. Ed. 2d 214, 102 S. Ct. 1114 (1982), the parties agreed while the petition for certiorari was pending to limit the damages sought for the alleged violations of the Fair Housing Act to a total of $1,200. The Court held, "If respondents have suffered an injury that is compensable in money damages of some undetermined amount, the fact that they have settled on a measure of damages does not make their claims moot. Given respondents' continued active pursuit of monetary relief, this case remains 'definite and concrete, touching the legal relations of parties having adverse legal interests.'" Id. at 371.

Another parallel is presented by Nixon v. Fitzgerald, 457 U.S. 731, 73 L. Ed. 2d 349, 102 S. Ct. 2690 (1982). While the petition for certiorari was pending, petitioner Nixon paid Fitzgerald $142,000 in settlement, and the parties agreed that if the Court ruled that Nixon was not entitled to absolute immunity. Fitzgerald would accept liquidated damages of $28,000. The Court, relying on Havens Realty Corp. v. Coleman, supra, rejected the contention that the case was no longer justiciable, stating, "The limited agreement between the parties left both petitioner and respondent with a considerable financial stake in the resolution of the question presented in this Court." Id. at 744.

Wheeling-Pittsburgh and the Union have a live disagreement about their claim to the disputed $146,000. The legal issues before us are being pursued with vigor. Representatives of all three interests, the Union, the Company, and the principal bank creditors, participated in the oral argument on the merits. We are satisfied that there are justiciable claims and that the appeal is not moot.

IV.

THE PROCEEDINGS BELOW

The issue before the bankruptcy court was whether Wheeling-Pittsburgh established by a preponderance of the evidence the necessary prerequisites for rejection of its collective bargaining agreement under section 1113. In re Wheeling-Pittsburgh Steel Corp., 50 Bankr. 969 (Bankr. W.D. Pa. 1985). The court analyzed Wheeling-Pittsburgh's application for rejection under section 1113 according to a nine-step process first enunciated in In re American Provision Co., 44 Bankr. 907, 909 (Bankr. D. Minn. 1984), and followed by other bankruptcy courts. It found that Wheeling-Pittsburgh had (1) submitted a proposal for modification; (2) "met with the Union negotiators on many occasions" thereafter; (3) negotiated with the Union in "good faith" because it made reasonable efforts to negotiate a voluntary modification and provided the Union the information necessary to evaluate its proposal in time to conduct meaningful negotiations; and (4) that Wheeling-Pittsburgh's proposal was based on the most complete and reliable information available. Id. at 975-77. On the hotly contested issue of (5) whether Wheeling-Pittsburgh's proposed modification was necessary for reorganization, the Union had argued that neither the proposed $15.20 per hour labor cost nor the five-year agreement was necessary for reorganization. The court found that because of the critical state of the United States steel industry and the deep financial difficulty of Wheeling-Pittsburgh, these provisions were necessary to the maintenance of labor stability during the estimated five years needed for reorganization. Id. at 977-79. The court found that even though there was no clause providing for an upward labor rate adjustment if Wheeling-Pittsburgh rebounded financially, (6) all parties were treated "fairly and equitably" because creditors and salaried employees also made sacrifices for the reorganization. Id. at 979-80. The bankruptcy court rejected the Union's contention that it had been given insufficient information and time to consider the proposal. It found (7) that Wheeling-Pittsburgh had provided the Union with sufficient information to evaluate the proposal because the Union's financial analysts already possessed a wealth of detailed financial information about Wheeling-Pittsburgh previously given in connection with prebankruptcy concessions, and that the three weeks' time given was sufficient in the emergent ...


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