Author Archives: Jeffrey H Taub

Court Denies Pinnacle Airlines’ Motion to Reject Collective Bargaining Agreement: Outlines Potential Resolution

Following the pattern recently established by other S.D.N.Y. bankruptcy judges in Hostess and American Airlines, Judge Robert Gerber denied Pinnacle Airlines’ motion to reject its collective bargaining agreement with the Air Line Pilots Association on narrow factual grounds. Although Judge Gerber found that Pinnacle had demonstrated that the “great bulk” of its final offer to the pilots was necessary to Pinnacle’s reorganization, the court held that:

• Pinnacle had not demonstrated that it was necessary to reduce its labor costs below the labor costs of its competitors,
• Given the substantial concessions requested from the pilots, the profit sharing proposals offered to the pilots were not fair and equitable, and
• Pinnacle’s failure to make any changes to the total labor cost savings requested from the pilots constituted good cause on the part of the pilots to reject Pinnacle’s proposal.
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Hostess to Liquidate

After a final mediation session between Hostess and its unions failed to put Hostess’s reorganization back on track, Bankruptcy Judge Robert Drain authorized the orderly wind down of Hostess’s operations. As a result, Hostess will prepare to sell its assets and shut down its factories. However, a purchaser may seek to restart the production of the beloved baked goods such as Twinkies, Ho-Hos and Donettes. Continue reading

Hostess Does Not Liquidate, Set to Mediate With Union

Reports of Twinkie the Kid’s death have been exaggerated. Despite widespread mainstream media reports of Hostess’ impending liquidation, the court has not yet approved liquidation. To the contrary, on November 19, 2012, after a brief hearing on Hostess’s emergency motions to begin the wind down of its operations, Hostess and its two main unions agreed to attend a confidential mediation session. At the mediation, Bankruptcy Judge Robert Drain intends to determine if the parties can avoid liquidation. Continue reading

Hostess Court Authorizes Rejection of Bakers’ Union Collective Bargaining Agreements

Last month the drama surrounding Hostess’s efforts to reject various collective bargaining agreements drew to a close (pending appeal). Bankruptcy Judge Robert Drain (in an unpublished decision) authorized Hostess to reject its existing CBAs with affiliates of the Bakery, Confectionery, Tobacco and Grain Workers International Union, and modify the terms of its expired CBAs with the Bakers’ Union on an interim basis. The Bakers Union was the last of Hostess’s major unions holding out and refusing to accept modifications to its CBAs. See Transcript of Hearing, In re Hostess Brands, Inc., No. 12-22052 (RDD) (Bankr. S.D.N.Y. Oct 3, 2012). This decision resolves an open question that arose in May when Judge Drain held that debtors could not reject expired CBAs on a final basis pursuant to section 1113(c) of the Bankruptcy Code but might be allowed to reject such CBAs on an interim basis pursuant to section 1113(e). Cadwalader reviewed the hearing transcript to analyze the opinion. Continue reading

Tribal Gaming Enterprise Held Ineligible to File for Chapter 11

Since the passage of the Indian Gaming Regulatory Act in 1988, casinos owned by Native American tribes have proliferated across tribal lands and have generated billions of dollars in revenue annually. While casinos such as Mohegan Sun and Foxwoods are among the largest and well-known tribal casinos, over 60 exist in the State of California, where many dozen small properties have sprung up throughout the state in recent years, in some cases built in part with the proceeds of high-yield bond debt. This recent growth spurt juxtaposed with the prolonged downturn in consumer spending has clearly demonstrated that numerous tribal casinos, like their mainstream competitors, are overleveraged and need to restructure their financial obligations in order to sustain their operations. Continue reading

AMR Update: Judge Authorizes American Airlines to Reject Pilots’ CBA

On September 4, 2012, Judge Sean H. Lane granted American’s renewed motion to reject its CBA with the Allied Pilots Association. As discussed HERE, on August 15, the court denied American’s original motion to reject the CBA on narrow grounds, but allowed American to submit a renewed motion that remedied the codesharing and furlough defects identified by the court. American submitted a revised proposal to the APA the following day and renewed its motion on August 17. Notably, the APA did not argue that American’s modifications to the codesharing and furlough provisions were not necessary. Instead, the APA argued that new information regarding (i) a potential American-US Airways merger, (ii) American’s labor costs as compared to the rest of the airline industry, and (iii) American’s decision to accept a reduced amount of labor savings from its non-pilot employees made American’s proposed changes to the CBA unnecessary to its reorganization. Continue reading

Court Denies American Airlines’ Motion to Reject CBAs; Provides Roadmap to Future Rejection

On August, 15, 2012, Bankruptcy Judge Sean H. Lane of the Southern District of New York denied American’s motion to reject its collective bargaining agreement with the Allied Pilots Association (“APA”) on narrow grounds. The Court held that American had not demonstrated that its proposals to eliminate contractual restrictions on pilot furloughs and enter into essentially unlimited codesharing arrangements were necessary to its reorganization. However, the court rejected the vast majority of the APA’s broader arguments, found that the CBA was “a burden that American is unable to maintain” and that American had met the standards for rejecting a CBA under section 1113 of the Bankruptcy Code. Specifically, the court held that (i) American could reject the CBA even though a potential merger between American and US Airways may have resulted in fewer sacrifices by the APA; (ii) American’s business plan was a sufficient basis to reject the CBA; (iii) American’s proposal was fair and equitable; and (iv) American negotiated in good faith. Accordingly, the court denied American’s motion without prejudice to remedying the furlough and codesharing shortcomings.
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Hostess Court Dismisses Motion to Reject Expired Collective Bargaining Agreements Under Bankruptcy Code Section 1113

On June 22, 2012, Judge Robert Drain of the United States Bankruptcy Court for the Southern District of New York granted the motion of the Bakery, Confectionary, Tobacco Workers and Grain Millers International Union to dismiss Hostess’s motion to reject certain expired collective bargaining agreements. The court held that section 1113 of the Bankruptcy Code no longer applied to key portions of the CBAs because the agreements had expired – certain CBA obligations remained in force only by operation of the National Labor Relations Act. In re Hostess Brands, Inc., 2012 WL 2374235 (Bankr. S.D.N.Y. June 22, 2012). Continue reading

The Devil (Dog) ® is in the Details: Bankruptcy Court Denies Hostess’s Motion to Reject Collective Bargaining Agreements on Narrow Factual Grounds

The recent bankruptcy case of Hostess has centered on Hostess’s attempts to reject collective bargaining agreements with its unions. Hostess has emphasized that realigning labor costs is essential to its ability to successfully reorganize. Section 1113 of the Bankruptcy Code sets forth detailed requirements that a debtor must meet to modify or reject CBAs. Bankruptcy courts’ ultimate decision to authorize rejection of a CBA frequently turns on a detailed examination of the evidence presented in support of the rejection motion. This post discusses the recent ruling of Judge Robert Drain of the United States Bankruptcy Court for the Southern District of New York denying Hostess’s motion to reject several CBAs with local affiliates of the International Brotherhood of Teamsters. Although the court did not issue a written opinion of its decision, we have reviewed and analyzed the lengthy hearing transcript. See Transcript of Hearing, In re Hostess Brands, Inc., No. 12-22052 (RDD) (Bankr. S.D.N.Y. May 14, 2012). Judge Drain analyzed extensively the parties’ proposed modifications to the CBAs. Although he found that most of the key modifications related to withdrawing from multiemployer pension plans were necessary and thus permitted under applicable law, he did not authorize the rejection because the Teamsters had cause to reject Hostess’s final proposal. Judge Drain’s holding turned on a relatively minor point of fact pertaining to a one percent difference in proposed EBITDA margin – an issue only addressed briefly in the pleadings and the ruling. Continue reading

RadLax Review – Oral Argument Observations

On Monday April 23, 2012, the U.S. Supreme Court heard oral arguments in RadLAX Gateway Hotel, LLC v. Amalgamated Bank. In this case, the Debtors proposed a plan of reorganization that prohibited their secured lenders from credit bidding on collateral to be sold pursuant to the plan under the indubitable equivalent prong of the cram down provisions of the Bankruptcy Code. Contrary to prior opinions of the Third and Fifth Circuits, the Seventh Circuit held that the plan was improper. Click here to view our previous posts on this case. The Court allotted thirty minutes of argument to RadLAX; and Amalgamated and the U.S. Government shared another thirty minutes of argument time. Restructuring Review attended the argument and, although it is generally difficult to predict how the Court will rule based on the questions directed to counsel during the argument, we note the following observations: Continue reading