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For decades, we at Cohen, Weiss and Simon LLP have been helping our union and fund clients navigate the often treacherous waters of the bankruptcy world. Some bankruptcy judges might shrink from such a charged, non-bankruptcy controversy. Shannon of the United States Bankruptcy Court for the District of Delaware, faced recently with a class-action waiver case, strode into the fray, and with some deft strokes of legal reasoning produced an admirable decision, striking down an arbitration clause that a bankrupt employer raised as a defense to an employee class action. With a touch of understatement, he observed that “[t]here is little consensus on this issue.” Despite the swirl of controversy, and some federal appeals courts lined up on the other side, Judge Shannon concluded that the NLRA “unambiguously protects the right of employees to bring a collective action.” The NLRA gives employees the right to engage in “concerted activities” for their “mutual aid or protection” and prohibits employers from interfering with that right. The union also argued that because Section 1113(e) allows a debtor, under emergency circumstances, temporarily to reject a collective bargaining agreement that “continues in effect,” while Section 1113(c), by contrast, makes no mention of collectively-bargained obligations that “continue in effect,” Congress must have intended Section 1113(e), but not 1113(c), to apply to the NLRA’s post-expiration status quo obligation. 2014), a case in which a bankruptcy court wrote that the automatic stay applied to a debtor’s alter egos since the debtor and alter egos are “one and the same entity.” 494 B. “Just because two entities are alter egos does not make them both debtors under the Bankruptcy Code,” he explained.Indeed, we helped write some of the key laws, and litigated some of the key cases, in this area of the law. According to the bankruptcy court’s analysis, the collective pursuit of claims constitutes a form of concerted activity, so arbitration agreements that prohibit class actions interfere with employees’ NLRA rights. 2016), and held the arbitration clause unlawful despite the opt-out clause. The court, however, dismissed this argument as “hyper-technical parsing” of the statutory language. “It simply means they are liable for each other’s debts.” He wrote that the bankruptcy court in the Adler case, by indicating otherwise, had ignored the plain language of the Bankruptcy Code.While we try to provide accurate information, we make no commitment to our readers that the information on the blog is accurate, complete or current. Four years on, the controversy still rages, splitting courts internally, see, e.g., Morris v. 2016) (2-1 split on the issue, with dissenter charging majority with “breathtaking” error), and also splitting courts one from another, with some courts rejecting the NLRB’s position, see, e.g., D. The only appeals court decision on point, Johnmohammadi v. 2014), held that the opt-out washed the class-action waiver free of any unlawful taint. It is decisions like Fresh & Easy that restore one’s confidence that bankruptcy courts, though focused on bankruptcy issues, can successfully and surely navigate difficult labor questions. § 503(b)(1)(A)(ii), added to the Code as part of a package of 2005 amendments, seeks to define what types of back pay claims enjoy administrative priority status. And its lack of virtually any legislative history only adds to the fog. But what about the phrase “awarded pursuant to a judicial proceeding”? The decision is also surprising since the Third Circuit in the Wheeling-Pittsburgh case, 791 F.2d 1074 (3d Cir. (“Wasco”) and its wholly-owned subsidiary, Lovell’s Masonry, Inc. The companies were in default on withdrawal liability payments assessed by the Bricklayers pension fund under amendments to ERISA known as the Multiemployer Pension Plan Amendments Act of 1980 (“MPPAA”), 29 U. These transactions included payments of significant sums in bonuses and other compensation to the family members individually and to their affiliated businesses, sums sufficient to have funded the withdrawal liability payments. § 1112(b), on the grounds that the bankruptcy petition had been filed in bad faith. While holding that the automatic stay does not reach alleged alter egos, Judge Cogan explained that a bankruptcy court may, when circumstances warrant, protect certain non-debtors from suit, either by issuing an anti-suit injunction under Section 105(a) of the Bankruptcy Code or by approving a provision in the debtor’s plan of reorganization that prevents litigation against specified non-debtors.Nor is the blog intended to create an attorney-client relationship between Cohen, Weiss and Simon LLP and any reader of the blog. Nonetheless, displaying an appropriate appreciation for NLRB expertise on labor matters, the bankruptcy court endorsed the agency’s position on the issue, see On Assignment Staffing Servs., Inc., 362 N. How much judicial confusion can one small section of the Bankruptcy Code create? But the provision, which one bankruptcy court recently called “confusing on its face,” In re Calumet Photographic, Inc., 2016 WL 3035468, at *3 (Bankr. Section 503(b) of the Bankruptcy Code, divided into nine separate subparts, defines the various types of creditor claims against a debtor that enjoy administrative status. Similarly, since it applies to “wages and benefits,” another court found that claims for attorney’s fees arising from an employment suit don’t qualify either. Does the judicial proceeding have to be one other than the bankruptcy case in which the claim is asserted? 1986), issued one of the most pro-employee rulings on Section 1113, holding that a debtor must meet a very high burden to satisfy Section 1113’s necessity requirement. Once in bankruptcy, the companies proposed a reorganization plan that would pay the pension fund only a fraction of its withdrawal liability claims, while other creditors would be largely paid in full. The pension fund also moved to dismiss the entire bankruptcy case “for cause,” see 11 U. The bankruptcy court overruled the pension fund’s objections and approved the reorganization plan. District Court for the Middle District of Tennessee reversed, both as to the denial of the motion to dismiss and the approval of the bankruptcy plan. Judge Cogan, who once co-authored a chapter on bankruptcy in a legal treatise, devoted part of his opinion to a discussion of what circumstances might justify such bankruptcy court protection of non-debtors.We decided to create this blog to highlight recent developments in the field, discuss significant milestones and share some of our insights. This blog is for informational purposes only and is not intended to provide legal advice. But does the employer dodge an NLRA violation by inserting an opt-out clause in the arbitration agreement? Finally, the court held that, with the class-action waiver at the heart of the arbitration agreement stricken, the arbitration agreement itself could not stand. It is unfortunate that the first decision from a court of appeals addressing this question takes a results-oriented approach and expands a debtor’s power to avoid its obligations to its workers beyond what is authorized by the plain language of the Code. The fund had obtained a court ruling enforcing the payments, but before entry of the court’s order, the companies filed Chapter 11 bankruptcies. Another problem with extending the automatic stay to alleged alter egos, the judge wrote, is that it would make the automatic stay “into a provision that can only be applied with the benefit of hindsight,” since determining whether one entity is in fact the alter ego of another typically requires litigation.The blog should not be used as a substitute for competent legal counsel by a licensed attorney. 2277, that employer-imposed arbitration clauses violate federal law if they prohibit employees from bringing class-action claims. On that issue, Judge Shannon concluded, the NLRA provided no clear guidance. The court thus denied the company’s motion to stay the class-action proceeding. 2016), has proven to be a real head-scratcher for the courts called upon to interpret it. The decision is particularly unfortunate because the Third Circuit has jurisdiction over bankruptcy courts in Delaware, the site of a large number of major corporate bankruptcies. Bricklayers involved the bankruptcy cases of two family-owned masonry businesses in Tennessee, Wasco, Inc. In addition, in the years just prior to bankruptcy filings, and at the same time they were failing to make their interim withdrawal liability payments and claiming financial distress, Wasco and Lovell’s had undertaken a number of financial transactions that benefitted company “insiders”—essentially, family member shareholders who ran the business. Applying a stay of litigation only after the litigation has occurred makes little sense.
In Fresh & Easy, LLC, an employee of a grocery store chain signed an arbitration agreement that prohibited her from bringing a class-action suit against the company. Why reward those executives under whose watch the company went bankrupt? Trustee’s office, or the Committee of Unsecured Creditors, two important players in a Chapter 11 case, sometimes also raise objections to a proposed KEIP). The debtor moving for approval of a KEIP will argue that Section 503(c)(1) creates no bar because the executives to receive the bonuses aren’t insiders, or, if they are, the proposed bonus plan does not aim to induce them to remain at their jobs, but seeks to incentivize them to achieve certain performance goals (hence, the self-serving label “key employee incentive plan”). Fortunately, the bankruptcy rules allow for pre-hearing discovery. The appeals court reasoned that there might be situations where avoiding a debtor’s continuing obligation to maintain the statutory status quo would be necessary for the debtor to reorganize successfully, and that bankruptcy courts have the expertise required to make that necessity determination.
Subsection (ii), which is the subject of this blog post, is a mouthful. But are there circumstances where the use of bankruptcy to evade debt obligations violates the Bankruptcy Code’s “good faith” requirements and triggers violations of law that can sink a debtor’s reorganization plan? The pension fund objected to the bankruptcy plan on the grounds that plan violated the requirement under bankruptcy law that a bankruptcy plan be “proposed in good faith and not by any means forbidden by law.” 11 U. The court also noted a press release put out by the companies announcing the bankruptcy. These proposed bonus plans frequently meet opposition, particularly in cases where the debtor also seeks to cut the pay and benefits of its unionized workforce.