September 22, 2015 Practice Points

The Apparent Conflict Between the Norris-LaGuardia Act and Section 362

The case is In re Trump Entertainment Resorts, Inc.

By Alexander G. Najemy

In In re Trump Entertainment Resorts, Inc., the court, in denying the debtors’ amended motion for declaratory judgment that the activities of a non-debtor labor union violated the automatic stay under section 362 of the Bankruptcy Code, appeared to reconcile the potential conflict between the broad scope of the automatic stay and the prohibition against enjoining labor disputes under the Norris-LaGuardia Act (NLA). Due to the facts and circumstances of the case, however, the court was not required to squarely address whether the automatic stay of the Bankruptcy Code or the “anti-injunction” provision of the NLA controls when in direct conflict.

The debtors in Trump Entertainment sought to enforce the automatic stay against a labor union representing some of the debtors’ employees. Prior to the September 9, 2014 petition date, the labor union and the debtors had a collective bargaining agreement (CBA) that governed their relationship. The CBA expired on September 14, 2014. Under the National Labor Relations Act, the debtors were required to maintain the status quo, which was generally defined by the terms of the old CBA. The days after the CBA expired, the debtors made a proposal to the labor union in respect of a new agreement. The labor union rejected that proposal. On September 26, 2014, the labor union began contacting potential customers of the debtors, discussing the ongoing labor dispute and encouraging the debtors’ potential clients to relocate their events to other sites.

The debtors filed a motion under section 1113 of the Bankruptcy Code to reject the CBA, which was granted. The labor union filed a $10 million proof of claim based on this rejection. On October 8, 2014, the debtors filed a motion for an order to enforce the automatic stay against the labor union, claiming that it was violating the stay and demanding attorney fees and expenses. At the subsequent hearing, the debtors modified their request for relief, asking the court for only a declaratory judgment that the labor union’s contact with the potential clients violated the automatic stay.

In denying the debtors’ motion, the court reviewed both the NLA and the automatic stay provisions of the Bankruptcy Code. It first determined that the labor union’s activities fell within the scope of the NLA and were not one of the enumerated exceptions under the NLA, such as for unlawful conduct. The debtors’ argued that, because the automatic stay was a statutory injunction created upon the filing of a voluntary petition, (as opposed to a court-issued injunction), the prohibition on injunctions under the NLA were not applicable. The court rejected that argument, pointing out that the automatic stay functioned as the equivalent of a court-issued injunction. Thus, the NLA was applicable. The court noted that a contrary result would cause the court to become more heavily involved in labor relations, a result that, the court stated, the U.S. Congress apparently wanted to avoid.

The court also rejected the debtors’ assertion that the labor union’s actions violated the automatic stay. The debtors alleged that the labor union was attempting to gain possession or exercise control over property of the estate—namely the contractual relationships between the debtors and the potential clients. The court agreed that such relationships were property of the estate, but it rejected the argument that the labor union’s actions constituted an attempt to gain possession or exercise control. In reaching this conclusion, the court employed a three-part test, evaluating the nexus between the conduct at issue and the property interest of the bankruptcy estate, the degree of impact on the bankruptcy estate and the competing legal interests of the non-debtor parties. The court determined that, while the first two factors weighed slightly in the debtors’ favor, the third factor weighed so heavily in favor of the labor union that the automatic stay under Section 362(a)(3) could not apply to their actions.

Finally, the court rejected the debtors argument that the automatic stay under section 362(a)(6) was applicable to the labor union’s actions, as such actions in reality constituted an attempt to collect on its CBA rejection damages claim. Disagreeing with this argument, the court noted that the CBA had not been rejected when the labor union had contacted the debtors’ potential clients.

While the Trump Entertainment opinion addresses the intersection of federal bankruptcy and labor law, the court was able to reach its decision without resolving the potential conflict between the Bankruptcy Code and the NLA. Whether and how the courts will address such potential conflicts awaits further development.

Alexander G. Najemy – September 22, 2015