363 Sale Order Cannot Extinguish Statutory Obligation to Bargain With
363 Sale Order Cannot Extinguish Statutory Obligation to Bargain With
Union Sales under 11 U.S.C. §363 have become increasingly popular because they allow a buyer to purchase assets free and clear of liens, claims, and other interests, while at the same time allowing for a quicker process than what would be required under a plan.
When all or substantially all of a debtor’s assets are sold, the purchaser usually seeks to include in the sale order that the assets are acquired free and clear of various obligations, including successor or transferee liability.
If the debtor’s employees are unionized, a buyer can seek to reject the collective bargaining agreement under 11 U.S.C. §1113. Additionally, the debtor can seek to include language in the sale order to the effect that the CBA is an “interest” and, as such, that the property is sold free and clear of the CBA.
In a recent case out of the U.S. District Court for the District of Delaware, the buyer obtained all of the above: (1) a free and clear sale order expressly eliminating any potential successor liability; (2) rejection of the CBA under §1113, and (3) a court order recognizing that the property was sold free and clear of the CBA.
Despite those protections, the union of the debtor’s employees took the position that, as a “perfectly clear” successor to the debtor under the National Labor Relations Act, the buyer was obligated to bargain with the union regarding new terms and conditions of employment. The union’s position was based on the fact that the buyer hired essentially all of the debtor’s union- represented employees and continued the same business.
After the buyer refused to bargain with the union, the union sought relief from the NLRB, which issued a complaint against the buyer. The buyer then moved the bankruptcy court for an order enforcing the sale order and enjoining the union from pursuing relief from the NLRB based on the “free and clear” provision. The bankruptcy court granted the buyer’s request and enjoined the union for pursuing the complaint before the NLRB.
The union appealed.
The district court reversed. It held that the buyer's obligations under federal labor law to bargain with the union over terms and conditions of employment arose from the buyer's post-sale conduct, namely hiring substantially all of the debtor’s employees and maintaining the same business.
Additionally, the district court concluded that this statutory duty was not an "interest in property" which could be extinguished pursuant to §363(f). Of interest to practitioners in the First Circuit, the district court relied on, among other cases, In re Carib-Inn of San Juan Corp, 905 F.2d 561, 563-64 (1st Cir. 1990), a case involving a similar controversy and where the First Circuit made the following observation: “the proposition that an order of the bankruptcy court could protect the purchaser from the consequences [of its alleged agent's conduct] under the National Labor Relations Act would be untenable.”