When an employer in bankruptcy sells an operation or facility “free and clear,” does that absolve the buyer of its successorship obligations under federal labor law, which are based on post-sale actions? The federal district court in Delaware recently answered that question in the negative, reaching the same conclusion as other courts that have considered the issue. See In re CCX Inc., 22-1563 (D. Del. Sept. 19, 2023)
CCX, a steelmaker, operated a facility in Pennsylvania whose employees were represented by the United Steelworkers. After entering bankruptcy, CCX sold the facility “free and clear” under Section 363(f) of the Bankruptcy Code. After the sale closed, the buyer, Braeburn Alloy Steel, continued steelmaking operations and hired almost all the employees who had worked at the facility when it was owned by CCX. The Steelworkers Union filed an unfair labor practice charge with the National Labor Relations Board, claiming that Braeburn’s post-sale actions, including the hiring of CCX’s former workforce, made it a successor under federal labor law. Braeburn asked the bankruptcy court to block the NLRB charge, arguing that its purchase of the facility “free and clear” wiped out any possible successorship obligations.
The bankruptcy court sided with Braeburn, focusing on the sale’s effect on the union’s collective bargaining agreement. However, on appeal, the district court reversed, the bankruptcy court’s stay of the NLRB proceedings.
District Judge Gregory Williams explained that the focus should not be on the post-sale status of the union’s labor contract, but on the purchaser’s successorship obligations under federal labor law based on its post-sale actions. The judge explained that those statutory obligations, triggered by Braeburn’s post-sale actions, including the hiring of former CCX employees, did not constitute an “interest” in property under Section 363(f) that could be wiped away by a “free and clear” sale. The judge also explained that whether Braeburn violated its statutory successorship obligations was a question within the exclusive jurisdiction of the NLRB and thus for that agency to decide. On this latter point, the court joined other federal courts that have held that following a bankruptcy sale, a buyer’s successorship obligations under federal labor law are committed exclusively to the NLRB’s jurisdiction. See e.g., See Erica, Inc. v. NLRB, 200 F. App’x 344, 347 (5th Cir. Sep. 19, 2006); In re Carib-Inn of San Juan Corp, 905 F.2d 561, 563-64 (1st Cir. 1990); In re Bel Air Chateau Hosp., Inc., 611 F.2d 1248, 1251 (9th Cir. 1979).
The Delaware district court in CCX clearly reached the right result, reaffirming that bankruptcy sales cannot pre-emptively absolve a buyer of its post-sale statutory labor obligations.
The United Steelworkers were represented in the litigation by the USW Legal Department and lawyers at Cohen, Weiss and Simon LLP.