When Republican Presidential Candidate Donald J. Trump calls himself the “king of debt” and talks about inflating the dollar to avoid defaulting on the national debt, employees of the Trump Taj Mahal casino and hotel in Atlantic City are one group of people who probably aren’t laughing.
A series of Chapter 11 restructurings, which began under Trump’s leadership during the 1990s and continued as the Taj Mahal was purchased by Icahn Enterprises early this year, have hit employees with sizeable economic losses. The latest of these bankruptcy cases is also an important new precedent for employers seeking to use the Federal Bankruptcy Code to “reject” expired labor contracts that are otherwise enforceable under federal labor law.
In re Trump Entm't Resorts, 205 LRRM 3201, 2016 BL 11157 (3d Cir. 2016) presented the Third Circuit with a matter of first impression among federal appellate courts: may a Chapter 11 debtor reject the continuing terms of a labor contract under Section 1113 of the Bankruptcy Code after the contract has expired? Answering yes, the court affirmed a decision of a federal bankruptcy court that permitted Trump Entertainment Resorts, Inc., to switch from a pension to a 401(k) and replace employees’ health and welfare plan with subsidized coverage under Obamacare.
High rolling on the Boardwalk
Though Mr. Trump has not been affiliated with the former corporate owner of the Trump Taj Mahal for several years, the casino’s recent bankruptcy and sale is the culmination of three prior bankruptcies in 1991, 2004 and 2009 when Trump was directly involved as the casino’s promoter and later a major shareholder.
The first bankruptcy, following construction of the Taj Mahal in 1990, resulted in Trump giving up about half of his stake in the casino for help dealing with his $900 million in personal liability from the venture. Trump’s share fell to about 27 percent in the 2004 bankruptcy and then 10 percent in 2009.
Dealt a new hand
The September 2014 bankruptcy happened without Trump’s involvement. Trump Entertainment Resorts, Inc., and affiliated debtors filed for Chapter 11 protection in the U.S. Bankruptcy Court for the District of Delaware.
The debtors asked UNITE HERE Local 54, which represents 1,136 of the casino’s 2,953 employees, to extend the term of its labor contract, and the union refused unless debtors would agree to terminate the extension upon filing of their motion to reject the contract under the Bankruptcy Code.
With no new agreement in place, the contract expired September 14, 2014. The debtors then filed a motion to reject it and implement the terms of their last proposal.
The bankruptcy court granted the debtors’ motion to reject the expired contract, the union appealed to the Third Circuit, and the National Labor Relations Board filed an amicus brief arguing that Section 1113 of the Bankruptcy Code didn’t authorize the bankruptcy court to let the employer off the hook for its obligations under the NLRA.
Letting the chips fall
Affirming, the Third Circuit rejected the union’s argument that it lacked subject-matter jurisdiction because the expired contract no longer exists.
The court held that Section 1113(c) is not limited to “unexpired” or “executory” labor contracts, and that the rehabilitative purpose of the Bankruptcy Code gives debtors latitude to restructure their affairs to achieve long-term viability.
‘Luck be a lady…’
The Third Circuit might not have the last word, however. On April 14, 2016, the union petitioned the U.S. Supreme Court for certiorari, arguing that the case “involves a crucial intersection between bankruptcy law and federal labor law.”
The union argued in its brief that the employer has continuing bargaining obligations under the NLRA when no labor contract exists, and that the ruling “obliterates the role of the NLRB,” which the Bankruptcy Code says continues after an employer files for bankruptcy.
As the Supreme Court takes a look at the case for possible review of these issues during its next term, it might remain to be seen who holds the better cards.
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