Union’s Consumer Boycott Does Not Violate Automatic Stay, Delaware Bankruptcy Court Says

By Peter D. DeChiara

pdechiara@cwsny.com

Posted August 2015

If a union launches a consumer boycott against an employer that has filed for Chapter 11 bankruptcy, does the bankruptcy court have authority to enjoin the union’s conduct?  That was the question faced by the bankruptcy court for the District of Delaware recently in Trump Entertainment Resorts, Inc., Case No. 14-12103 (Bankr. D. Del. July 21, 2015).  There, the court found that the Norris-LaGuardia Act of 1932, 29 U.S.C. §§101-15 – which divests federal courts of jurisdiction to issue labor injunctions – prohibited issuance of an injunction against the union, despite the debtors’ claim that the union’s actions violated the Bankruptcy Code’s automatic stay, 11 U.S.C. §362.

In Trump, the debtors, who owned and operated a casino in Atlantic City, filed for Chapter 11 protection in September 2014.  That same month, they filed a motion – which the bankruptcy court granted – to reject the casino’s expired collective bargaining agreement with UNITE HERE Local 54.   (See Nov. 2014 blog post below.)  Around the same time, the union, to bring pressure to bear on the casino, began writing to organizations that were planning to hold conferences there, informing these customers of the union’s dispute with the casino and encouraging them to hold their events elsewhere.

In October 2014, the debtors filed a motion demanding that the bankruptcy court stay the union’s boycott efforts, arguing that the union’s conduct violated the automatic stay’s prohibition on acts taken to obtain or exercise control over estate property or to collect monies owed from the debtor.  See 11 U.S.C. §§362(a)(3), (a)(6).  The union responded that both the Norris-LaGuardia Act and the First Amendment shielded its conduct from judicial interference.  By the time the bankruptcy court held a hearing on the stay motion months later, in April 2015, the debtors had already achieved confirmation of their plan of reorganization and were just waiting for it to go into effect.  As a result of the changed posture of the case, the debtors abandoned most of the relief they had originally sought in the stay motion, asking the court for what amounted to no more than a declaratory judgment.

In denying the debtors’ stay motion, Bankruptcy Judge Kevin Gross noted that the Norris-LaGuardia Act prohibits injunctions against unions for “[g]iving publicity to the existence of, or the facts involved in, any labor dispute,” 29 U.S.C. §104(e), and he found that Local 54’s boycott efforts fell squarely within the scope of this statutory protection.  The judge also noted that a consumer boycott is a lawful economic weapon and that depriving the union of its use would diminish the union’s leverage in negotiating a new collective bargaining agreement.  In addition, he cited two court of appeals cases, In re Petrusch, 667 F.2d 297 (2d Cir. 1981), and  In re Crowe & Associates, Inc., 713 F.2d 211 (6th Cir. 1983), holding that a union does not violate the automatic stay by engaging in strikes or picketing to pressure the debtor to pay contributions owed to union benefit funds.  The courts in those cases reasoned that if Congress had intended the automatic stay to trump the Norris-LaGuardia Act, it would have so indicated in either the text or legislative history of the Bankruptcy Code.

Despite all this, Judge Gross nonetheless felt that the protections afforded the debtors by the Bankruptcy Code’s automatic stay required the court to “walk an interpretative tightrope” and to engage in a  “searching analysis” to arrive at the decision to deny the stay motion.  In fact, the court could have reached the result it did with greater ease.  Applying the automatic stay to the union’s boycott efforts in this case was questionable at best, since the union was not in any direct fashion trying to obtain possession or control of estate property or seeking to collect monies owed.  Moreover, the case was all but over by time the court resolved the stay motion.  The automatic stay serves to prevent dismemberment of the bankruptcy estate prior to an orderly liquidation or a reorganization.  Since the casino had a confirmed plan of reorganization, the automatic stay had, as a practical matter, already served its purpose.  That the debtors abandoned most of the relief they originally sought in the motion signaled that they believed far less was now at stake.

Although the court in Trump may have struggled more than necessary to get there, it came down with the correct decision, and should be applauded for having done so.