Alabama Bankruptcy Court Allows Rejection of Mineworkers’ Contract

By Peter D. DeChiara

pdechiara@cwsny.com

March 2019

Unions often face a daunting challenge when confronted by an employer’s motion in bankruptcy court to reject a collective bargaining agreement.  A recent decision by an Alabama bankruptcy court sustaining an employer’s rejection motion well illustrates the challenge unions face.  See In re Mission Coal Co., LLC, Case No. 18-04177-TOM11 (Bankr. N.D. Ala., March 1, 2019).

Hard times in the coal fields continue to yield a rich supply of new bankruptcy cases.  Mission Coal Company owns mines with a union workforce represented by the United Mine Workers.  Struggling with heavy debt and operational difficulties (including freezing weather that prevented shipments of its coal), the company filed for Chapter 11 bankruptcy.  With a limited ability to secure additional financing, the company decided that an asset sale was its only option.  The company searched for a buyer but found no viable bidder willing to purchase the company’s assets if the sale was subject to the UMW contract.  It made a proposal to the union to terminate the collective bargaining agreement as of the effective date of a sale, to delete the successorship clause in the contact that would have made it binding on a buyer, and to eliminate any obligation to continue participation in union pension and retiree health plans.  The UMW refused to agree to any contract modifications or to make a counteroffer.

In her decision, bankruptcy judge Tamara Mitchell acknowledged that the miners were the “backbone” of the company’s operations and that her decision would have a “huge” impact on both employees and retirees, imposing “enormous potential hardship.”  Yet, her 63-page decision proceeded with the inevitability of a logical syllogism:  the company needed to sell its assets, the buyers wouldn’t take the union contract — ergo, the union contract had to go.

The judge dutifully undertook the multi-factor analysis often used in Section 1113 cases, but applied it in such a way that the outcome was never in doubt.  Arguments the UMW raised fell like pins before a bowling ball.

The union pointed out that the company had presented its core proposal — to completely dismantle the union contract — as essentially “non-negotiable.”  Despite the company’s “take-it-or-leave-it” approach, the court found that the company had satisfied the requirement that an employer “confer in good faith in attempting to reach mutually satisfactory” contract modifications.  That the company went through the motions of meeting with the union on several occasions, and was willing to meet further, was apparently enough for the court.

Judge Mitchell also acknowledged that one of the recognized Section 1113 factors is whether the union has “good cause” to reject the company’s proposal to tear up its contract.  But the court effectively eliminated that question as an independent inquiry, holding that if the company satisfies the other Section 1113 factors, no “good cause” can exist for the union to reject the proposal.

The court noted further that under the well-established test, Section 1113 relief should only issue when the balance of equities “clearly” favors rejecting the union’s contract.  The judge reasoned that pre-bankruptcy bonuses for management did not render inequitable the rejection of the union contract, because no evidence showed the management bonuses had “hastened” the company’s path to bankruptcy.  But that reasoning doesn’t explain why bonuses for bosses, and cuts for workers, produces a balance on the scale of equity.  The judge recognized that even during the bankruptcy case, the company won court approval of a “key employee” bonus plan for mid-level managers, but concluded that the bonus plan was something “separate and distinct” from, and thus somehow outside the scope of, the Section 1113 analysis.

One point that the judge came back to again and again in her decision was the UMW’s failure to make a counteroffer to the company’s proposals.  Given the basic premise of the decision, that stripping away the contract was necessary, it is doubtful that a union counter would have made any difference to the outcome.  In such circumstances, it may be appropriate for a union not to make a counteroffer.  But, in general, judges seem to prefer it when unions facing Section 1113 motions show some flexibility.  Doing so may not change the outcome, but it could give a union some traction for pushing back against a motion that in many cases is difficult to defeat.