NLRB v. Bildisco & Bildisco
465 U.S. 513 (1984)

Annotate this Case

U.S. Supreme Court

NLRB v. Bildisco & Bildisco, 465 U.S. 513 (1984)

National Labor Relations Board v. Bildisco & Bildisco

No. 82-818

Argued October 11, 1983

Decided February 22, 1984*

465 U.S. 513

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR

THE THIRD CIRCUIT

Syllabus

Section 365(a) of the Bankruptcy Code (Code) provides that, with certain exceptions, the trustee, subject to the Bankruptcy Court's approval, may assume or reject "any executory contract" of the debtor. In April, 1980, respondent debtor (hereafter respondent), a building supplies distributor, filed a voluntary petition in bankruptcy for reorganization under Chapter 11 of the Code, and was subsequently authorized by the Bankruptcy Court to operate the business as a debtor-in-possession. At the time the petition was filed, some of respondent's employees were represented by petitioner Union with whom respondent had negotiated a collective bargaining agreement that was to expire in April, 1982. Beginning in January, 1980, respondent failed to meet some of its obligations under the agreement, including the payment of health and pension benefits and the remittance to the Union of dues collected, and in May, 1980, respondent refused to pay wage increases called for in the agreement. Thereafter, respondent requested and received permission from the Bankruptcy Court to reject the agreement, and the Union was allowed 30 days in which to file a claim for damages stemming from the rejection. The District Court upheld the order. In the summer of 1980, the Union filed unfair labor practice charges with the National Labor Relations Board (Board), which found that respondent had violated §§ 8(a)(5) and 8(a)(1) of the National Labor Relations Act (NLRA) by unilaterally changing the terms of the collective bargaining agreement and by refusing to negotiate with the Union, and ordered respondent to make the pension and health contributions and to remit dues to the Union. Consolidating the Union's appeal from the District Court's order and the Board's petition for enforcement of its order, the Court of Appeals held that a collective bargaining agreement is an executory contract subject to rejection by a debtor-in-possession under § 365(a) of the Code; that the debtor-in-possession's authority to seek rejection of the

Page 465 U. S. 514

agreement was not qualified by § 8(d) of the NLRA; but that to obtain rejection, a debtor-in-possession must show not only that the agreement burdens the estate but also that the equities balance in favor of rejection. The case was remanded for the Bankruptcy Court's reconsideration in light of these standards. The Court of Appeals refused to enforce the Board's order, rejecting the Board's conclusion that respondent, as a debtor-in-possession, was the alter ego of the pre-petition employer, and holding that, under the Code, a debtor-in-possession was deemed a "new entity" not bound by the debtor's prior collective bargaining agreement.

Held:

1. The language "executory contract" in § 365(a) of the Code includes collective bargaining agreements subject to the NLRA, and the Bankruptcy Court should permit rejection of such an agreement under § 365(a) if the debtor can show that the agreement burdens the estate and that the equities balance in favor of rejection. Pp. 465 U. S. 521-527.

(a) Any inference that collective bargaining agreements are not included within the general scope of § 365(a) because they differ for some purposes from ordinary contracts is rebutted by § 365(a)'s statutory design and by the language of § 1167 of the Code expressly exempting from § 365(a) collective bargaining agreements subject to the Railway Labor Act. The failure to grant a similar exemption to agreements subject to the NLRA indicates that Congress intended § 365(a) to apply to all collective bargaining agreements covered by the NLRA. Pp. 465 U. S. 521-523.

(b) Because of the special nature of a collective bargaining agreement, and the consequent "law of the shop" that it creates, a somewhat stricter standard than the "business judgment" standard applied to authorize rejection of an ordinary executory contract should govern the Bankruptcy Court's decision to allow rejection of a collective bargaining agreement. But a standard that would require respondent to demonstrate that its reorganization will fail unless rejection is permitted is at odds with the flexibility and equity built into Chapter 11 and subordinates the multiple, competing considerations underlying a Chapter 11 reorganization to the issue of whether rejection of the agreement is necessary to prevent the debtor from going into liquidation. Pp. 465 U. S. 523-526.

(c) Before acting on a petition to modify or reject a collective bargaining agreement, the Bankruptcy Court should be persuaded that reasonable efforts to negotiate a voluntary modification have been made and are not likely to produce a prompt and satisfactory solution. If the parties are unable to agree, a decision on the rejection of the agreement may become necessary to the reorganization process. But since the policy of Chapter 11 is to permit successful rehabilitation of debtors, rejection should not be permitted without a finding that that policy would be

Page 465 U. S. 515

served by such action. Determining what would constitute a successful rehabilitation involves balancing the interests of the debtor, creditors, and employees, and in striking the balance the court must consider not only the degree of hardship faced by each party, but also any qualitative differences between the types of hardship each may face. Pp. 465 U. S. 526-527.

2. A debtor-in-possession does not commit an unfair labor practice when it unilaterally rejects or modifies a collective bargaining agreement before formal rejection is approved by the Bankruptcy Court. Pp. 465 U. S. 527-534.

(a) To hold that the debtor commits an unfair labor practice under such circumstances would undermine whatever benefit the debtor otherwise obtains by its authority to request rejection of the agreement. The difference between a Chapter 11 reorganization, wherein the debtor-in-possession has until a reorganization plan is confirmed to decide whether to accept or reject an executory contract, and a Chapter 7 liquidation, wherein the trustee has only 60 days from the order for relief in which to make such a decision, reflects Congress' considered judgment that a debtor-in-possession seeking to reorganize should be granted more latitude in making the decision than should a trustee in liquidation. Pp. 465 U. S. 528-529.

(b) Since recovery on a claim arising from a debtor-in-possession's rejection of an executory collective bargaining agreement after the filing of a petition in bankruptcy may be had only through administration of the claim in bankruptcy, and not by a suit against the debtor-in-possession under the agreement, the Board is necessarily precluded from, in effect, enforcing the agreement by filing an unfair labor practice charge against the debtor-in-possession for violating § 8(d) of the NLRA. Such enforcement would run directly counter to the Code's express provisions and to its overall effort to give a debtor-in-possession some flexibility and breathing space. From the filing of the bankruptcy petition until formal acceptance, the collective bargaining agreement is not an enforceable contract within the meaning of § 8(d). Accordingly, the debtor-in-possession need not comply with § 8(d) prior to seeking the Bankruptcy Court's permission to reject the agreement. It necessarily follows that any corresponding duty to bargain to impasse under § 8(a)(5) and § 8(d) before seeking rejection must also be subordinated to the exigencies of bankruptcy. Pp. 465 U. S. 529-534.

682 F.2d 72, affirmed.

REHNQUIST, J., delivered the opinion of the Court, in Parts I and II of which all other Members joined, and in Part III of which BURGER, C.J., and POWELL, STEVENS, and O'CONNOR, JJ., joined. BRENNAN, J., filed an opinion concurring in part and dissenting in part, in which WHITE, MARSHALL, and BLACKMUN, JJ., joined, post, p. 465 U. S. 535.

Page 465 U. S. 516

JUSTICE REHNQUIST delivered the opinion of the Court.

Two important and related questions are presented by these petitions for certiorari: (1) under what conditions can a Bankruptcy Court permit a debtor-in-possession to reject a collective bargaining agreement; (2) may the National Labor Relations Board find a debtor-in-possession guilty of an unfair labor practice for unilaterally terminating or modifying a collective bargaining agreement before rejection of that agreement has been approved by the Bankruptcy Court. We decide that the language "executory contract" in § 365(a) of the Bankruptcy Code, 11 U.S.C. § 365(a) (1982 ed.), includes within it collective bargaining agreements subject to the National Labor Relations Act, and that the Bankruptcy Court may approve rejection of such contracts by the debtor-in-possession upon an appropriate showing. We also decide that a debtor-in-possession does not commit an unfair labor practice when, after the filing of a bankruptcy petition but before court-approved rejection of the collective bargaining

Page 465 U. S. 517

agreement, it unilaterally modifies or terminates one or more provisions of the agreement. We therefore affirm the judgment of the Court of Appeals for the Third Circuit in these cases.

I

A

On April 14, 1980, respondent Bildisco and Bildisco (Bildisco), a New Jersey general partnership in the business of distributing building supplies, filed a voluntary petition in bankruptcy for reorganization under Chapter 11 of the Bankruptcy Code, 11 U.S.C. § 1101 et seq. (1982 ed.). [Footnote 1] Bildisco was subsequently authorized by the Bankruptcy Court to operate the business as debtor-in-possession under 11 U.S.C. § 1107 (1982 ed.). [Footnote 2]

At the time of the filing of the petition in bankruptcy, approximately 40 to 45 percent of Bildisco's labor force was represented by Local 408 of the International Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America

Page 465 U. S. 518

(Union). Bildisco had negotiated a 3-year collective bargaining agreement with the Union that was to expire on April 30, 1982, and which expressly provided that it was binding on the parties and their successors even though bankruptcy should supervene. Beginning in January, 1980, Bildisco failed to meet some of its obligations under the collective bargaining agreement, including the payment of health and pension benefits and the remittance to the Union of dues collected under the agreement. In May, 1980, Bildisco refused to pay wage increases called for in the collective bargaining agreement.

In December, 1980, Bildisco requested permission from the Bankruptcy Court, pursuant to 11 U.S.C. § 365(a) (1982 ed.), [Footnote 3] to reject the collective bargaining agreement. At the hearing on Bildisco's request, the sole witness was one of Bildisco's general partners, who testified that rejection would save his company approximately $100,000 in 1981. The Union offered no witnesses of its own, but cross-examined the witness for Bildisco. On January 15, 1981, the Bankruptcy Court granted Bildisco permission to reject the collective bargaining agreement and allowed the Union 30 days in which to file a claim for damages against Bildisco stemming from the rejection of the contract. The District Court upheld the order of the Bankruptcy Court, and the Union appealed to the Court of Appeals for the Third Circuit.

B

During midsummer, 1980, the Union filed unfair labor practice charges with the National Labor Relations Board (Board). The General Counsel of the Board issued a complaint alleging that Bildisco had violated § 8(a)(5) and § 8(a)(1) of the National Labor Relations Act (NLRA), 29 U.S.C.

Page 465 U. S. 519

§ 158(a)(5) and § 158(a)(1), [Footnote 4] by unilaterally changing the terms of the collective bargaining agreement, in failing to pay certain contractually mandated fringe benefits and wage increases and to remit dues to the Union. Ultimately the Board found that Bildisco had violated § 8(a)(5) and § 8(a)(1) of the NLRA by unilaterally changing the terms of the collective bargaining agreement and by refusing to negotiate with the Union. Bildisco was ordered to make the pension, health, and welfare contributions and to remit dues to the Union, all as required under the collective bargaining agreement. The Board petitioned the Court of Appeals for the Third Circuit to enforce its order.

C

The Court of Appeals consolidated the Union's appeal and the Board's petition for enforcement of its order. In re Bildisco, 682 F.2d 72 (1982). That court held that a collective bargaining agreement is an executory contract subject to rejection by a debtor-in-possession under § 365(a) of the Bankruptcy Code. The authority of the debtor-in-possession to seek rejection of the collective bargaining agreement was not qualified by the restrictions of § 8(d) of the NLRA, which established detailed guidelines for midterm modification of collective bargaining agreements, [Footnote 5] because,

Page 465 U. S. 520

in the court's view, the debtor-in-possession was a "new entity" not bound by the labor agreement. The Court of Appeals concluded, however, that, given the favored status Congress has accorded collective bargaining agreements, a debtor-in-possession had to meet a more stringent test than the usual "business judgment" rule to obtain rejection. The Court of Appeals accepted the standard applied by the Court of Appeals for the Second Circuit in Shopmen's Local Union No. 455 v. Kevin Steel Products, Inc., 519 F.2d 698, 707

Page 465 U. S. 521

(1975), and required the debtor-in-possession to show not only that the collective bargaining agreement is burdensome to the estate, but also that the equities balance in favor of rejection. The case was remanded for the Bankruptcy Court's reconsideration in light of the standards enunciated.

The Court of Appeals refused to enforce the Board's order, rejecting the Board's conclusion that Bildisco, as debtor-in-possession, was the alter ego of the pre-petition employer. Under the Bankruptcy Code, a debtor-in-possession was deemed a "new entity" not bound by the debtor's prior collective bargaining agreement. Because rejection relates back to the filing of a petition, the Court of Appeals held that, if Bildisco were permitted to reject the contract, the Board was precluded from premising an unfair labor practice on Bildisco's rejection of the labor contract. The Court of Appeals implied that, if the Bankruptcy Court determined that the collective bargaining agreement should not be rejected, the Board could find a violation of § 8(d) of the NLRA.

We granted certiorari to review the decision of the Court of Appeals because of the apparent conflict between that decision and the decision of the Court of Appeals for the Second Circuit in Brotherhood of Railway, Airline and Steamship Clerks v. REA Express, Inc., 523 F.2d 164, cert. denied, 423 U.S. 1017 (1975).

II

Section 365(a) of the Bankruptcy Code, 11 U.S.C. § 365(a) (1982 ed.), provides in full:

"(a) Except as provided in sections 765 and 766 of this title and in subsections (b), (c), and (d) of this section, the trustee, subject to the court's approval, may assume or reject any executory contract or unexpired lease of the debtor."

This language, by its terms, includes all executory contracts except those expressly exempted, and it is not disputed by the parties that an unexpired collective bargaining

Page 465 U. S. 522

agreement is an executory contract. [Footnote 6] Any inference that collective bargaining agreements are not included within the general scope of § 365(a) because they differ for some purposes from ordinary contracts, see John Wiley & Sons, Inc. v. Livingston,376 U. S. 543, 376 U. S. 550 (1964), is rebutted by the statutory design of § 365(a) and by the language of § 1167 of the Bankruptcy Code. The text of § 365(a) indicates that Congress was concerned about the scope of the debtor-in-possession's power regarding certain types of executory contracts, and purposely drafted § 365(a) to limit the debtor-in-possession's power of rejection or assumption in those circumstances. [Footnote 7] Yet none of the express limitations on the debtor-in-possession's general power under § 365(a) apply to collective bargaining agreements. Section 1167, in turn, expressly exempts collective bargaining agreements subject to the Railway Labor Act, but grants no similar exemption to agreements subject to the NLRA. [Footnote 8] Obviously, Congress

Page 465 U. S. 523

knew how to draft an exclusion for collective bargaining agreements when it wanted to; its failure to do so in this instance indicates that Congress intended that § 365(a) apply to all collective bargaining agreements covered by the NLRA.

None of the parties to these cases disputes the foregoing proposition. But the Board contends that the standard by which the Bankruptcy Court must judge the request of a debtor-in-possession to reject a collective bargaining contract must be stricter than the traditional "business judgment" standard applied by the courts to authorize rejection of the ordinary executory contract. See Group of Institutional Investors v. Chicago, M., St. P. & P. R. Co.,318 U. S. 523, 318 U. S. 550 (1943); see also In re Minges, 602 F.2d 38, 42 (CA2 1979); In re Tilco, Inc., 558 F.2d 1369, 1372 (CA10 1977). The Union also contends that the debtor-in-possession must comply with the procedural requirements of § 8(d) of the NLRA, or at a minimum, bargain to impasse before it may request the Bankruptcy Court either to assume or to reject the collective bargaining agreement.

Although there is no indication in § 365 of the Bankruptcy Code that rejection of collective bargaining agreements should be governed by a standard different from that governing other executory contracts, all of the Courts of Appeals which have considered the matter have concluded that the standard should be a stricter one. See In re Brada Miller Freight System, Inc., 702 F.2d 890 (CA11 1983); In re Bildisco, 682 F.2d 72 (CA3 1982); see also Local Joint Executive Board v. Hotel Circle, Inc., 613 F.2d 210 (CA9 1980)

Page 465 U. S. 524

(rejection under the Bankruptcy Act); Shopmen's Local Union No. 455 v. Kevin Steel Products, Inc., 519 F.2d 698 (CA2 1975) (same). We agree with these Courts of Appeals that, because of the special nature of a collective bargaining contract, and the consequent "law of the shop" which it creates, see John Wiley & Sons, supra; Steelworkers v. Warrior & Gulf Navigation Co.,363 U. S. 574, 363 U. S. 578-579 (1960), a somewhat stricter standard should govern the decision of the Bankruptcy Court to allow rejection of a collective bargaining agreement.

The Union and the Board argue that, in light of the special nature of rights created by labor contracts, Bildisco should not be permitted to reject the collective bargaining agreement unless it can demonstrate that its reorganization will fail unless rejection is permitted. This very strict standard was adopted by the Second Circuit in Brotherhood of Railway, Airline and Steamship Clerks v. REA Express, Inc., 523 F.2d at 167-169, decided under the former Bankruptcy Act three years before § 365(a) was passed by Congress. Under the canon of statutory construction that Congress is presumed to be aware of judicial interpretations of a statute, the Board argues that Congress should be presumed to have adopted the interpretation of the Second Circuit when it enacted § 365(a). See Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Curran,456 U. S. 353, 456 U. S. 379-382 (1982); Lorillard v. Pons,434 U. S. 575, 434 U. S. 580-581 (1978). The Board makes a related argument that Congress was fully aware of the strict standard for rejection established in REA Express, and approved that standard when enacting § 365(a) of the Bankruptcy Code. In the legislative history accompanying § 82 of the Bankruptcy Act, a provision relating to municipal bankruptcies, the Report of the House Committee on the Judiciary referred to Kevin Steel Products, supra, and REA Express, supra, as authority for the proposition that a stricter shoving than the "business judgment" test was necessary to reject a collective bargaining agreement. See H.R.Rep.

Page 465 U. S. 525

No. 94-686, pp. 17-18 (1975). Since Congress made § 365(a) applicable to municipal bankruptcies, see 11 U.S.C. § 901(a) (1982 ed.), the Board argues that this reference to REA Express supports an inference that Congress adopted the REA Express standard for rejecting collective bargaining agreements when it enacted § 365(a).

These arguments are wholly unconvincing. Quite simply, Kevin Steel and REA Express reflect two different formulations of a standard for rejecting collective bargaining agreements. Congress cannot be presumed to have adopted one standard over the other without some affirmative indication of which it preferred. The reference in the House Report to Kevin Steel and REA Express also cannot be considered a congressional endorsement of the stricter standard imposed on rejection of collective bargaining agreements by the Second Circuit in REA Express, since the Report indicates no preference for either formulation. At most, the House Report supports only an inference that Congress approved the use of a somewhat higher standard than the "business judgment" rule when appraising a request to reject a collective bargaining agreement.

The standard adopted by the Court of Appeals for the Second Circuit in REA Express is fundamentally at odds with the policies of flexibility and equity built into Chapter 11 of the Bankruptcy Code. The rights of workers under collective bargaining agreements are important, but the REA Express standard subordinates the multiple, competing considerations underlying a Chapter 11 reorganization to one issue: whether rejection of the collective bargaining agreement is necessary to prevent the debtor from going into liquidation. The evidentiary burden necessary to meet this stringent standard may not be insurmountable, but it will present difficulties to the debtor-in-possession that will interfere with the reorganization process.

We agree with the Court of Appeals below, and with the Court of Appeals for the Eleventh Circuit in a related case,

Page 465 U. S. 526

In re Brada Miller Freight System, Inc., supra, that the Bankruptcy Court should permit rejection of a collective bargaining agreement under § 366(a) of the Bankruptcy Code if the debtor can show that the collective bargaining agreement burdens the estate, and that, after careful scrutiny, the equities balance in favor of rejecting the labor contract. The standard which we think Congress intended is a higher one than that of the "business judgment" rule, but a lesser one than that embodied in the REA Express opinion of the Court of Appeals for the Second Circuit.

Before acting on a petition to modify or reject a collective bargaining agreement, however, the Bankruptcy Court should be persuaded that reasonable efforts to negotiate a voluntary modification have been made and are not likely to produce a prompt and satisfactory solution. The NLRA requires no less. Not only is the debtor-in-possession under a duty to bargain with the union under § 8(a)(5) of the NLRA, 29 U.S.C. § 158(a)(5), see infra at 465 U. S. 534, but the national labor policies of avoiding labor strife and encouraging collective bargaining, § 1, NLRA, 29 U.S.C. § 151, generally require that employers and unions reach their own agreements on terms and conditions of employment free from governmental interference. See, e.g., Howard Johnson Co. v. Hotel Employees,417 U. S. 249 (1974); NLRB v. Burns International Security Services, Inc.,406 U. S. 272, 406 U. S. 282-294 (1972). The Bankruptcy Court need step into this process only if the parties' inability to reach an agreement threatens to impede the success of the debtor's reorganization. If the parties are unable to agree, a decision on the rejection of the collective bargaining agreement may become necessary to the reorganization process. At such a point, action by the Bankruptcy Court is required, while the policies of the NLRA have been adequately served, since reasonable efforts to reach agreement have been made. That court need not determine that the parties have bargained to impasse or make any other

Page 465 U. S. 527

determination outside the field of its expertise. See infra at 465 U. S. 533-534.

Since the policy of Chapter 11 is to permit successful rehabilitation of debtors, rejection should not be permitted without a finding that that policy would be served by such action. The Bankruptcy Court must make a reasoned finding on the record why it has determined that rejection should be permitted. Determining what would constitute a successful rehabilitation involves balancing the interests of the affected parties -- the debtor, creditors, and employees. The Bankruptcy Court must consider the likelihood and consequences of liquidation for the debtor absent rejection, the reduced value of the creditors' claims that would follow from affirmance and the hardship that would impose on them, and the impact of rejection on the employees. In striking the balance, the Bankruptcy Court must consider not only the degree of hardship faced by each party, but also any qualitative differences between the types of hardship each may face.

The Bankruptcy Court is a court of equity, and in making this determination, it is in a very real sense balancing the equities, as the Court of Appeals suggested. Nevertheless, the Bankruptcy Court must focus on the ultimate goal of Chapter 11 when considering these equities. The Bankruptcy Code does not authorize freewheeling consideration of every conceivable equity, but rather only how the equities relate to the success of the reorganization. The Bankruptcy Court's inquiry is of necessity speculative, and it must have great latitude to consider any type of evidence relevant to this issue.

III

The second issue raised by these cases is whether the NLRB can find a debtor-in-possession guilty of an unfair labor practice for unilaterally rejecting or modifying a collective bargaining agreement before formal rejection by the Bankruptcy Court. Much effort has been expended

Page 465 U. S. 528

by the parties on the question of whether the debtor is more properly characterized as an "alter ego" or a "successor employer" of the pre-bankruptcy debtor, as those terms have been used in our labor decisions. See Howard Johnson Co. v. Hotel Employees, supra, at 417 U. S. 259, n. 5; NLRB v. Burns International Security Services, Inc., supra; Southport Petroleum Co. v. NLRB,315 U. S. 100, 315 U. S. 106 (1942). We see no profit in an exhaustive effort to identify which, if either, of these terms represents the closest analogy to the debtor-in-possession. Obviously if the latter were a wholly "new entity," it would be unnecessary for the Bankruptcy Code to allow it to reject executory contracts, since it would not be bound by such contracts in the first place. For our purposes, it is sensible to view the debtor-in-possession as the same "entity" which existed before the filing of the bankruptcy petition, but empowered by virtue of the Bankruptcy Code to deal with its contracts and property in a manner it could not have employed absent the bankruptcy filing.

The fundamental purpose of reorganization is to prevent a debtor from going into liquidation, with an attendant loss of jobs and possible misuse of economic resources. See H.R.Rep. No. 95-595, p. 220 (1977). In some cases, reorganization may succeed only if new creditors infuse the ailing firm with additional capital. We recognized the desirability of an analogous infusion of capital in Burns, supra, at 406 U. S. 288; a similarly beneficial recapitalization could be jeopardized if the debtor-in-possession were saddled automatically with the debtor's prior collective bargaining agreement. Thus, the authority to reject an executory contract is vital to the basic purpose of a Chapter 11 reorganization, because rejection can release the debtor's estate from burdensome obligations that can impede a successful reorganization.

While all parties to these cases ultimately concede that the Bankruptcy Court may authorize rejection of a collective bargaining agreement, the Board and the Union nonetheless insist that a debtor-in-possession violates § 8(a)(5) and § 8(d)

Page 465 U. S. 529

of the NLRA if it unilaterally changes the terms of the collective bargaining agreement between the date of filing the bankruptcy petition and the date on which the Bankruptcy Court authorizes rejection of the agreement. [Footnote 9] But acceptance of such a contention would largely, if not completely, undermine whatever benefit the debtor-in-possession otherwise obtains by its authority to request rejection of the agreement. In a Chapter 11 reorganization, a debtor-in-possession has until a reorganization plan is confirmed to decide whether to accept or reject an executory contract, although a creditor may request the Bankruptcy Court to make such a determination within a particular time. 11 U.S.C. § 365(d)(2) (1982 ed.). In contrast, during a Chapter 7 liquidation, the trustee has only 60 days from the order for relief in which to decide whether to accept or reject an executory contract. § 365(d)(1). It seems to us that this difference between the two types of proceedings reflects the considered judgment of Congress that a debtor-in-possession seeking to reorganize should be granted more latitude in deciding whether to reject a contract than should a trustee in liquidation.

Under the Bankruptcy Code, a proof of claim must be presented to the Bankruptcy Court for administration, or be lost when a plan of reorganization is confirmed. See 11 U.S.C. §§ 501, 502, and 1141 (1982 ed.). [Footnote 10] Actions on claims that

Page 465 U. S. 530

have been or could have been brought before the filing of a bankruptcy petition are, with limited exceptions not relevant here, stayed through the automatic stay provisions of the Bankruptcy Code. 11 U.S.C. § 362(a) (1982 ed.). The Bankruptcy Code specifies that the rejection of an executory contract which had not been assumed constitutes a breach of the contract which relates back to the date immediately preceding the filing of a petition in bankruptcy. 11 U.S.C. § 365(g)(1) (1982 ed.). [Footnote 11] Consequently, claims arising after filing, such as result from the rejection of an executory contract, must also be presented through the normal administration process by which claims are estimated and classified. See 11 U.S.C. § 502(g) (1982 ed.); In re R. Hoe & Co., 508 F.2d 1126, 1132 (CA2 1974); Workman v. Harrison, 282 F.2d 693, 699 (CA10 1960). Thus, suit may not be brought against the debtor-in-possession under the collective bargaining agreement; recovery may be had only through administration of the claim in bankruptcy. [Footnote 12]

Page 465 U. S. 531

While the Board insists that § 365(g)(1) deals only with priorities of payment, the implications from the decided cases are that the relation back of contract rejection to the filing of the petition in bankruptcy involves more than just priority of claims. [Footnote 13] Damages on the contract that result from the rejection of an executory contract, as noted, must be administered through bankruptcy and receive the priority provided general unsecured creditors. See 11 U.S.C. §§ 502(g), 507 (1982 ed.). If the debtor-in-possession elects to continue to receive benefits from the other party to an executory contract pending a decision to reject or assume the contract, the debtor-in-possession is obligated to pay for the reasonable value of those services, Philadelphia Co. v. Dipple,312 U. S. 168, 312 U. S. 174 (1941), which, depending on the circumstances of a particular contract, may be what is specified in the contract, see In re Public Ledger, 161 F.2d 762, 770-771 (CA3 1947). See also In re Mammoth Mart, Inc., 536 F.2d 950, 954-955 (CA1 1976). Should the debtor-in-possession elect to assume the executory contract, however, it assumes the contract cum onere, In re Italian Cook Oil Corp., 190

Page 465 U. S. 532

F.2d 994, 996 (CA3 1951), and the expenses and liabilities incurred may be treated as administrative expenses, which are afforded the highest priority on the debtor's estate, 11 U.S.C. § 503(b)(1)(A) (1982 ed.).

The necessary result of the foregoing discussion is that the Board is precluded from, in effect, enforcing the terms of the collective bargaining agreement by filing unfair labor practice charges against the debtor-in-possession for violating § 8(d) of the NLRA. Though the Board's action is nominally one to enforce § 8(d) of that Act, the practical effect of the enforcement action would be to require adherence to the terms of the collective bargaining agreement. But the filing of the petition in bankruptcy means that the collective bargaining agreement is no longer immediately enforceable, and may never be enforceable again. Consequently, Board enforcement of a claimed violation of § 8(d) under these circumstances would run directly counter to the express provisions of the Bankruptcy Code and to the Code's overall effort to give a debtor-in-possession some flexibility and breathing space. See H.R.Rep. No. 95-595, p. 340 (1977). We conclude that, from the filing of a petition in bankruptcy until formal acceptance, the collective bargaining agreement is not an enforceable contract within the meaning of NLRA § 8(d). Cf. Chemical Workers v. Pittsburgh Plate Glass Co.,404 U. S. 157, 404 U. S. 187 (1971); Charles Doud Box Co. v. Courtney,368 U. S. 502, 368 U. S. 510-513 (1962).

The Union, but not the Board, also insists that the debtor-in-possession must comply with the midterm contract modification procedures set forth in § 8(d) of the NLRA, 29 U.S.C. § 158(d). Seen 5, supra. Because the collective bargaining agreement is not an enforceable contract within the meaning of § 8(d), it follows that the debtor-in-possession need not comply with the provisions of § 8(d) prior to seeking the Bankruptcy Court's permission to reject the agreement.

Section 8(d) applies when contractual obligations are repudiated by the unilateral actions of a party to the collective bargaining agreement. We have recognized that Congress'

Page 465 U. S. 533

central purpose in enacting § 8(d) was to regulate the modification of collective bargaining agreements and to facilitate agreement in place of economic warfare. Chemical Workers v. Pittsburgh Plate Glass Co., supra, at 404 U. S. 187; see also H.R.Conf.Rep. No. 510, 80th Cong., 1st Sess., 34 (1947). In a Chapter 11 case, however, the "modification" in the agreement has been accomplished not by the employer's unilateral action, but rather by operation of law. Since the filing of a petition in bankruptcy under Chapter 11 makes the contract unenforceable, § 8(d) procedures have no application to the employer's unilateral rejection of an already unenforceable contract. Indeed, even the Board concedes that the cumbersome and rigid procedures of § 8(d) need not be imported into bankruptcy proceedings. Brief for NLRB 41.

The Union maintains, as a fall-back position, that even if § 8(d) procedures do not apply fully, the debtor-in-possession should be required to "bargain to impasse" prior to seeking rejection from the Bankruptcy Court. We interpret this contention to mean that the debtor-in-possession should not be permitted to seek rejection unless the duty to bargain has been excused because further negotiations would be fruitless, a standard little different from that imposed on all employers subject to the NLRA. See NLRB v. American National Insurance Co.,343 U. S. 395, 343 U. S. 404 (1952); Taft Broadcasting Co., 163 N.L.R.B. 475, 478 (1967), enf'd, 129 U.S.App.D.C. 399, 395 F.2d 622 (1968). Our rejection of the need for full compliance with § 8(d) procedures of necessity means that any corresponding duty to bargain to impasse under § 8(a)(5) and § 8(d) before seeking rejection must also be subordinated to the exigencies of bankruptcy. [Footnote 14] Whether

Page 465 U. S. 534

impasse has been reached generally is a judgment call for the Board to make; imposing such a requirement as a condition precedent to rejection of the labor contract will simply divert the Bankruptcy Court from its customary area of expertise into a field in which it presumably has little or none.

Our determination that a debtor-in-possession does not commit an unfair labor practice by failing to comply with § 8(d) prior to formal rejection of the collective bargaining agreement does not undermine the policy of the NLRA, for that policy, as we have noted, is to protect the process of labor negotiations, not to impose particular results on the parties. See H. K. Porter Co. v. NLRB,397 U. S. 99, 397 U. S. 105 (1970); NLRB v. Jones & Laughlin Steel Corp.,301 U. S. 1, 301 U. S. 45 (1937). Nevertheless, it is important to note that the debtor-in-possession is not relieved of all obligations under the NLRA simply by filing a petition for bankruptcy. A debtor-in-possession is an "employer" within the terms of the NLRA, 29 U.S.C. §§ 152(1) and (2), and is obligated to bargain collectively with the employees' certified representative over the terms of a new contract pending rejection of the existing contract or following formal approval of rejection by the Bankruptcy Court. See NLRB v. Burns International Security Services, Inc., 406 U.S. at 406 U. S. 281. But while a debtor-in-possession remains obligated to bargain in good faith under NLRA § 8(a)(5) over the terms and conditions of a possible new contract, it is not guilty of an unfair labor practice by unilaterally breaching a collective bargaining agreement before formal Bankruptcy Court action.

Accordingly, the judgment of the Court of Appeals is

Affirmed.

Page 465 U. S. 535

* Together with No. 82-852, Local 408, International Brotherhood of Teamsters, Chauffeurs, Warehousemen & Helpers of America v. National Labor Relations Board et al., also on certiorari to the same court.

[Footnote 1]

Chapter 11 of the present Bankruptcy Code was part of the Bankruptcy Reform Act of 1978, Pub.L. 95-598, 92 Stat. 2549. The first major revision of the bankruptcy laws since 1938, the Bankruptcy Reform Act consolidated three reorganization chapters of the former Bankruptcy Act into a single business reorganization chapter, with the intention that business reorganizations should be quicker and more efficient and provide greater protection to the debtor, creditors, and the public interest. See H.R.Rep. No. 95-595, p. 5 (1977).

[Footnote 2]

Title 11 U.S.C. § 1107 (1982 ed.) provides:

"(a) Subject to any limitations on a trustee under this chapter, and to such limitations or conditions as the court prescribes, a debtor in possession shall have all the rights, other than the right to compensation under section 330 of this title, and powers, and shall perform all the functions and duties, except the duties specified in sections 1106(a)(2), (3), and (4) of this title, of a trustee serving in a case under this chapter."

Although the term "debtor-in-possession" is not fully interchangeable with the term "trustee in bankruptcy" under the Bankruptcy Code, with respect to the issues before us, the analysis is the same whether it is the debtor-in-possession or trustee in bankruptcy who is attempting to reject a collective bargaining agreement.

[Footnote 3]

Title 11 U.S.C. § 365(a) (1982 ed.) reads:

"(a) Except as provided in sections 765 and 766 of this title and in subsections (b), (c), and (d) of this section, the trustee, subject to the court's approval, may assume or reject any executory contract or unexpired lease of the debtor."

[Footnote 4]

Section 8(a) of the NLRA, 61 Stat. 140, 29 U.S.C. § 158(a), provides in pertinent part:

"(a) Unfair labor practices by employer"

"It shall be an unfair labor practice for an employer -- "

"(1) to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in section 7;"

"* * * *"

"(5) to refuse to bargain collectively with the representatives of his employees. . . ."

[Footnote 5]

Section 8(d) of the NLRA, 61 Stat. 142, 29 U.S.C. § 158(d), reads in relevant part:

"(d) Obligation to bargain collectively"

"For the purposes of this section, to bargain collectively is the performance of the mutual obligation of the employer and the representative of the employees to meet at reasonable times and confer in good faith with respect to wages, hours, and other terms and conditions of employment, or the negotiation of an agreement, or any question arising thereunder, and the execution of a written contract incorporating any agreement reached if requested by either party, but such obligation does not compel either party to agree to a proposal or require the making of a concession: Provided, That where there is in effect a collective bargaining contract covering employees in an industry affecting commerce, the duty to bargain collectively shall also mean that no party to such contract shall terminate or modify such contract, unless the party desiring such termination or modification -- "

"(1) serves a written notice upon the other party to the contract of the proposed termination or modification sixty days prior to the expiration date thereof, or in the event such contract contains no expiration date, sixty days prior to the time it is proposed to make such termination or modification;"

"(2) offers to meet and confer with the other party for the purpose of negotiating a new contract or a contract containing the proposed modifications;"

"(3) notifies the Federal Mediation and Conciliation Service within thirty days after such notice of the existence of a dispute . . . ; and"

"(4) continues in full force and effect, without resorting to strike or lockout, all the terms and conditions of the existing contract for a period of sixty days after such notice is given or until the expiration date of such contract, whichever occurs later:"

"The duties imposed upon employers, employees, and labor organizations by paragraphs (2) to (4) . . . shall not be construed as requiring either party to discuss or agree to any modification of the terms and conditions contained in a contract for a fixed period, if such modification is to become effective before such terms and conditions can be reopened under the provisions of the contract. . . ."

[Footnote 6]

The Bankruptcy Code furnishes no express definition of an executory contract, see 11 U.S.C. § 365(a) (1982 ed.), but the legislative history of § 365(a) indicates that Congress intended the term to mean a contract "on which performance remains due to some extent on both sides." H.R.Rep. No. 95-595, p. 347 (1977); see S.Rep. No. 95-989, p. 58 (1978). We reject the argument of amicus United Mine Workers of America that a collective bargaining agreement is not an executory contract within the meaning of § 365(a). Under their labor contract, both Bildisco and the Union had reciprocal obligations, and at any point during the life of the contract, performance was due by both parties. See Labor Contract between Bildisco and Teamsters Local No. 408, App. 78-115.

[Footnote 7]

Although Congress granted the debtor-in-possession a broad power to assume or reject executory contracts, it qualified that power in certain situations. Very generally, subsections (b) and (c) limit the debtor-in-possession's or trustee's power of assumption in several circumstances; subsection (d) requires assumption or rejection within 60 days in cases of liquidation. Bankruptcy Code § 765 and § 766 limit the power of rejection or assumption in the case of the liquidation of a commodity brokerage business.

[Footnote 8]

Title 11 U.S.C. § 1167(a) (1982 ed.) reads in full:

"Notwithstanding section 365 of this title, neither the court nor the trustee may change the wages or working conditions of employees of the debtor established by a collective bargaining agreement that is subject to the Railway Labor Act (45 U.S.C. 151 et seq.) except in accordance with section 6 of such Act (45 U.S.C. 156)."

This provision was derived from former § 77(n) of the Bankruptcy Act. Reflective of the longstanding special treatment afforded railway labor, see Railway Employees v. Hanson,351 U. S. 225, 351 U. S. 232, and n. 5 (1956), Congress determined that "the subject of railway labor is too delicate . . . for this code to upset established relationships." H.R.Rep. No. 95-595, p. 423 (1977).

[Footnote 9]

The dissent states that the Board's interpretation of the NLRA should be given deference. Post at 465 U. S. 542-543. While the Board's interpretation of the NLRA should be given some deference, the proposition that the Board's interpretation of statutes outside its expertise is likewise to be deferred to is novel. We see no need to defer to the Board's interpretation of Congress' intent in passing the Bankruptcy Code.

[Footnote 10]

The Bankruptcy Code's provisions regarding the presentation of claims are permissive. See 11 U.S.C. § 501 (1982 ed.). Nevertheless, the filing of a proof of claim is a necessary condition to the allowance of an unsecured or priority claim, since a plan of reorganization is binding upon all creditors once the plan is confirmed, whether or not the claim was presented for administration. 11 U.S.C. § 1141(d)(1)(A)(i) (1982 ed.). See In re Francis, 15 B.R. 998, 5 C.B.C.2d 1101 (Bkrtcy.Ct. EDNY 1981); 3 L. King, R. Babitt, A. Herzog, & R. Levin, Collier on Bankruptcy

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