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Media Alerts - Trump Entertainment Resorts v. USDC for the District of Delaware - Third Circuit
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January 20, 2016
  Trump Entertainment Resorts v. USDC for the District of Delaware - Third Circuit
Headline: Third Circuit Holds Debtors Can Reject Expired Collective Bargaining Agreements Under Bankruptcy Code §1113

Area of Law: Bankruptcy

Issues Presented: Whether a Chapter 11 debtor-employer is able to reject the continuing terms and conditions of a Collective Bargaining Agreement (CBA) under § 1113 of the Bankruptcy Code after the CBA has expired?

Brief Summary: The appellee, Trump Entertainment Resorts (the debtor), filed for Chapter 11 bankruptcy and moved to reject its Collective Bargaining Agreement (CBA) with Unite Here Local 54 (the Union) under 11 U.S.C. § 1113. The bankruptcy court granted the debtor's motion to reject the CBA, finding that the debtor had made good faith efforts to renegotiate the expired CBA and to hold the debtor to the conditions of the CBA would prevent it from reorganizing. The bankruptcy court balanced the equities and held that the equities balanced in favor of rejecting the CBA. The union appealed the bankruptcy court's decision, arguing that its expired CBA is protected under the National Labor Relations Act and the bankruptcy court did not have authority to grant the debtor's motion to reject the CBA. The Third Circuit found that § 1113 applies to both current and expired CBAs. The court further found that the debtor had complied with its obligations under § 1113 in order to reject the CBA to reorganize in light of the bankruptcy. The debtor made a good faith effort to renegotiate the CBA and the Union stonewalled the debtor's efforts throughout the process. The Third Circuit affirmed the bankruptcy court's ruling granting the motion to reject the CBA.

Extended Summary: The appellee, Trump Entertainment Resorts (the debtor), filed for Chapter 11 bankruptcy. Prior to filing for bankruptcy, the debtor attempted to renegotiate its CBA with the appellant, Unite Here Local 54 (the Union). The Union was initially unresponsive and then delayed negotiations with the debtor. Unable to reach an agreement with the Union, and facing the risk of the casino going under which would result in all jobs lost and liquidating the assets, the debtor moved to reject the expired CBA under 11 U.S.C. §1113. The bankruptcy court granted the motion to reject the expired CBA, finding that the balance of equities favored rejecting the CBA.

The Union first challenged whether a bankruptcy court could grant a motion to reject an expired CBA under §1113. The Union argued that expired CBAs are protected under the National Labor Relations Act (NLRA) and the bankruptcy court erred in its interpretation of §1113 because it directly conflicted with the protections under NLRA. The Third Circuit reviewed the bankruptcy court's decision de novo. The court determined that the NLRA yields to §1113 only for reasons that permit the debtor to stay in business. Additionally, the Third Circuit concluded that § 1113 does apply to expired CBAs. Therefore, the bankruptcy court correctly applied the statute in granting the debtor's motion to reject the expired CBA.

In its argument, the Union compared a CBA to an executory contract, contending that under 11 U.S.C. § 365 a debtor cannot reject an executory contract and, therefore, a debtor cannot reject an expired CBA under § 1113. The court disagreed with the Union's argument, noting the important distinction between an executory contract and a CBA. Unlike with an executory contract, a debtor is still bound by the terms and conditions of a CBA even after it has expired. The court stated that under bankruptcy law it is preferable for a debtor to preserve jobs by rejecting a CBA than to lose jobs entirely because it had to comply with an expired CBA. The Third Circuit affirmed the judgment of the bankruptcy court, granting the debtor's motion to reject the CBA.

To read the full opinion, please visit http://www2.ca3.uscourts.gov/opinarch/144807p.pdf


Panel (if known): Schwartz, Scirica, and Roth, Circuit Judges

Argument Date: March 4, 2015

Date of Issued Opinion: January 15, 2016

Docket Number: No. 14-4807

Decided: The Third Circuit affirmed the judgment of the bankruptcy court holding that a debtor can reject an expired CBA under §1113.

Case Alert Author: Sarah Kiewlicz

Counsel: Kathy L. Krieger, Esquire, Darin M. Dalmat, Esquire, Evin F. Isaacson, Esquire, William T. Josem, Esquire, for appellant; Roy T. Englert, Jr., Esquire, Joshua S. Bolian, Esquire, for appellees Trump Entertainment Resorts; Mark B. Conlan, Esquire, for appellee Official Committee of Unsecured Creditors of Trump Entertainment Resorts; James T. Bentley, Esquire, Lawrence V. Gelber, Esquire, for appellee National Retirement Fund; Allan S. Brilliant, Esquire, G. Eric Brunstand Jr., Esquire, for appellee First Lien Lenders; Diana O. Embree, Esquire, Barbara A. O'Neill, Esquire, Paul A. Thomas, Esquire, for amicus appellant National Labor Relations Board; David M. Bass, Esquire, Michael D. Sirota, Esquire, for amicus appellee 710 Long Ridge Road Operating Company II, LLC, 240 Church Street Operating Company II, LLC, 1 Burr Road Operating Company II, LLC, 245 Orange Avenue Operating Company II, LLC and 107 Osbourne Street Operating Company II, LLC


Author of Opinion: Roth, J.

Circuit: Third Circuit

Case Alert Supervisor: Professor Mary E. Levy

    Posted By: Susan DeJarnatt @ 01/20/2016 08:55 AM     3rd Circuit  

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