When an employer with a unionized workforce in Chapter 11 bankruptcy sells some or all of the assets of its business, a key question is whether the purchaser is the employer’s alter ego or successor under the National Labor Relations Act. A recent decision from the Bankruptcy Court for the Southern District of Texas demonstrates the risks that arise in these circumstances and the importance of timely asserting an alter ego or successorship claim in response to a sale motion. See In re RunItOneTime LLC, No. 25-90191, 2026 WL 208451 (Bankr. S.D. Tex. Jan. 26, 2026).
In RunItOneTime, the debtors owned four casino “card rooms” in Washington State, employing 220 workers in a bargaining unit represented by a local union. After entering bankruptcy, the debtors agreed to sell the Washington card rooms to a new entity formed by their pre-petition CEO and majority shareholder. The debtors served notice that it was seeking bankruptcy court approval for the sale under Section 363(f) of the Bankruptcy Code, 11 U.S.C. § 363(f), with the notice stating that the sale would be “free and clear” of all existing claims, interests and encumbrances, and that the purchaser was “not an alter-ego of, or a successor to” the debtors and “shall not be deemed to be a ‘successor employer’” of the debtors. The union did not file an objection to the sale. After the court approved the sale, the union filed a motion for reconsideration, arguing that the sale order should not preclude it from asserting that the buyer is an alter ego and successor before the National Labor Relations Board (“NLRB”).
In its January 26, 2026 order, the bankruptcy court denied the union’s motion for reconsideration. Bankruptcy Judge Alfredo Perez held that section 363(f) gave the court jurisdiction to “extinguish claims that ‘arise from the property being sold,’” including claims that would otherwise be assertable against the buyer under the NLRB’s successor liability doctrine. Judge Perez further concluded that the union failed to demonstrate that the sale order caused “manifest injustice” — the very high bar faced by a party seeking reconsideration of a bankruptcy court order. The judge pointed out that the union “had notice and opportunity to object before the Sale Order was granted” but had not done so. He also noted that there were no ongoing NLRB proceedings between the parties, and that while the sale order transferred the assets free and clear of liability arising from the debtors’ pre-sale conduct, the order did not foreclose the NLRB’s ability to determine that the purchaser’s post-sale actions might give rise to successorship liability. See, e.g., In re CCX Inc., 654 B.R. 680 (D. Del. 2023) (post-sale actions by purchaser can create successorship obligations).
The bankruptcy court’s decision in RunItOneTime underscores the importance of carefully monitoring bankruptcy sale proceedings, understanding their significance, and being prepared to object in a timely manner when such proceedings could adversely affect the union’s interests. Although a timely objection may not have changed the outcome of this case, the objection typically places the union in the strongest position to preserve successorship arguments and other rights.
This case also underscores the benefits of having a robust successorship clause in a collective bargaining agreement (“CBA”). In this case, the CBA had no such clause, so the union could not raise any contractual successorship rights. When a CBA has a robust successorship clause, a debtor seeking to sell free and clear arguably has to satisfy the more demanding standard for rejecting the CBA under Section 1113 of the Bankruptcy Code, 11 U.S.C. § 1113, rather than only having to satisfy the less onerous standard for approving a sale under Section 363(f). See, e.g., In re Journal Reg. Co., 488 B.R. 835, 839-40 (Bankr. S.D.N.Y. 2013).