December 17, 2014 Articles

The House Always Wins: Section 1113 and Debtors with Crippling Labor Expenses

This portion of the Bankruptcy Code may serve as a "Trump" card for debtors facing expired collective bargaining agreements.

By Curtis S. Miller and Matthew R. Koch

Chapter 11 debtors saddled with significant labor obligations may have just drawn the card needed to craft successful plans of reorganization in the face of threatened liquidation. In the recent casino bankruptcy case of In re Trump Entertainment Resorts, Inc., the United States Bankruptcy Court for the District of Delaware determined as a matter of first impression that bankruptcy courts are empowered under Section 1113 of the Bankruptcy Code to reject and modify the terms of expired collective bargaining agreements (CBAs) upon application by the debtor. In re Trump Entm’t Resorts, Inc., 2014 WL 5343818, at *12 (Bankr. D. Del. Oct. 20, 2014). Although the debtor must satisfy the stringent requirements of Section 1113, the court found as a matter of law that the National Labor Relations Act (NLRA) did not limit its authority to approve and enforce a new CBA, even where the existing CBA has expired. Id. at *7–8.

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