In Re Northwest Airlines Corporation

This dispute between the Association of Flight Attendants ("AFA") and Northwest Airlines ("Northwest") is situated in a peculiar corner of our law more evocative of an Eero Saarinen interior of creative angularity than the classical constructions of Cardozo and Holmes. Northwest, under the protection of Chapter 11 of the Bankruptcy Code and with the bankruptcy court's imprimatur, has rejected the collective-bargaining agreement that until recently governed its relationship with the AFA and imposed new terms and conditions of employment upon its flight attendants. The AFA does not wish to accede to these terms and conditions of employment and threatens a work stoppage unless Northwest agrees to terms and conditions that are more favorable to the flight attendants.

The District Court for the Southern District of New York (Victor Marrero, Judge) issued a preliminary injunction precluding the AFA and its members from engaging in any form of work stoppage. It held that any such work stoppage would cause irreparable harm and, at this juncture, violate the Railway Labor Act. On this basis, the district court concluded that the Norris-LaGuardia Act did not deprive it of jurisdiction to issue the injunction.

We agree, but for substantially different reasons than those advanced by the district court. We hold that Section 2 (First) of the Railway Labor Act forbids an immediate strike when a bankruptcy court approves a debtor-carrier's rejection of a collective-bargaining agreement that is subject to the Railway Labor Act and permits it to impose new terms, and the propriety of that approval is not on appeal.

In December 2004, Northwest, one of the nation's largest air carriers, began negotiating changes to the collective-bargaining agreement ("CBA") governing its relationship with its flight attendants, who were then represented by the AFA's predecessor, the Professional Flight Attendants Association ("PFAA"). Since April 2005, these negotiations have been conducted under the auspices of the National Mediation Board ("NMB"), which is authorized by the Railway Labor Act to mediate disputes between carriers and their employees.

In September 2005, Northwest filed for protection under Chapter 11 of the Bankruptcy Code. Northwest's plan for reorganization required that its employees make significant concessions. Most of the unions that represent groups of Northwest employees have since negotiated new agreements.

Unable to reach an accommodation with its flight attendants, on November 7, 2005, Northwest sought bankruptcy court approval of certain interim modifications to the relevant CBA under 11 U.S.C. § 1113. On November 16, the bankruptcy court granted Northwest the requested relief. Nevertheless, the parties continued to negotiate in the hope of reaching a new mutually satisfactory agreement. On March 1, 2006, the PFAA leadership tentatively agreed to a new CBA (the "March 1 Agreement"); the membership, however, rejected the agreement by a margin of four-to-one.

In addition to seeking interim relief from its CBA, Northwest sought in September 2005 to obtain permanent relief from its CBA pursuant to 11 U.S.C. § 1113. After the flight attendants rejected the March 1 Agreement, Northwest reiterated this request, and, this time, the bankruptcy court granted Northwest's motion to reject its CBA. The bankruptcy court explained:

[t]he Court would do the flight attendants and the Debtors' thousands of other employees no favor if it refused to grant the Debtors' § 1113 relief, and the Debtors joined the ranks of the many other airlines that have liquidated as a consequence of a Chapter 11 filing.

In re Nw. Airlines Corp., 346 B.R. 307, 330 (Bankr.S.D.N.Y.2006). Along with this relief, the bankruptcy court permitted Northwest to impose the terms of the March 1 Agreement upon the flight attendants. Neither party appealed this decision.

The bankruptcy court conditioned its decision on Northwest's agreement to negotiate for an additional two weeks before it would allow the March 1 Agreement to take effect. Negotiations ensued, this time with the Association of Flight Attendants ("AFA"), which the flight attendants had elected as their new representative on July 7, 2006. On July 17, Northwest and the AFA reached another tentative agreement; again, however, on July 31, the flight attendants rejected the proposed agreement, this time by the narrower margin of 55-45%.

Northwest then imposed the March 1 Agreement. The AFA responded by notifying Northwest of its intent to disrupt Northwest's service by using a tactic suitably named CHAOS ("Create Havoc Around Our System"), which entails mass walkouts for limited periods of time and pinpoint walkouts at certain airports or gates. See Ass'n of Flight Attendants v. Alaska Airlines, 847 F.Supp. 832, 833-34 (W.D.Wash.1993).

Northwest moved to enjoin the strike. Bankruptcy Judge Gropper denied the motion on the basis that Northwest's rejection of the CBA and imposition of the March 1 Agreement amounted to a "unilateral action in changing the status quo that in turn frees the employees to take job action." Nw. Airlines Corp. v. Ass'n of Flight Attendants-CWA (In re Nw. Airlines Corp.), 346 B.R. at 344. On appeal, the district court reversed and granted the preliminary injunction. Judge Marrero held that Northwest had not unilaterally changed the status quo and that the union remained bound by the status quo provisions of the RLA, which forbid the exercise of self-help pending the exhaustion of various mechanisms to resolve disputes, including NMB mediation. Nw. Airlines Corp. v. Ass'n of Flight Attendants-CWA (In re Nw. Airlines Corp.), 349 B.R. 338, 379 (S.D.N.Y.2006) ("[T]his Court finds that an order authorizing rejection of a collective bargaining agreement pursuant to § 1113 does not terminate the Section 6 [of the RLA] process....").

The AFA and intervenor Air Line Pilots Association filed a timely appeal.

The AFA appeals entry of a preliminary injunction. We review the district court's judgment for abuse of discretion, although our review of its application of the law is de novo. See Green Party v. New York State Bd. of Elections, 389 F.3d 411, 418 (2d Cir.2004). We inquire whether Northwest has shown,

first, irreparable injury, and, second, either (a) likelihood of success on the merits, or (b) sufficiently serious questions going to the merits and a balance of hardships decidedly tipped in [its] favor.

Id.

This appeal turns on Northwest's likelihood of success on the merits, any assessment of which, in turn, requires us to interpret and heed three different statutory schemes: Section 1113 of Chapter 11 of the Bankruptcy Code, 11 U.S.C. § 1113; the Railway Labor Act of 1926 ("RLA"), 45 U.S.C. § 151 et seq.; and the Norris LaGuardia Act of 1932 ("NLGA"), 29 U.S.C. § 101 et seq.

Section 1113(a) of Title 11 provides that a carrier subject to the RLA may "reject a collective bargaining agreement" if the bankruptcy court determines (among other things) that "the balance of the equities clearly favors rejection of such agreement" and that rejection is "necessary to permit the reorganization." 11 U.S.C. §§ 1113(a), (b)(1)(A), (c)(3). However, to make such a determination, the bankruptcy court must specifically find that (1) the carrier has "ma[de] a proposal" to its employees "which provides for those necessary modifications in the employee benefits and protections that are necessary to permit the reorganization," (2) the carrier has provided its employees "with such relevant information as is necessary to evaluate the proposal," and (3) the "authorized representative of the employees has refused to accept such proposal without good cause." Id. §§ 1113(b)(1), (c) (emphasis added). Moreover, § 1113 also explicitly precludes carriers from "terminat[ing] or alter[ing] any provisions of a collective bargaining agreement prior to compliance with the provisions" of § 1113. Id. § 1113(f).

Congress passed § 1113 in response to the Supreme Court's decision in NLRB v. Bildisco & Bildisco, 465 U.S. 513, 104 S.Ct. 1188, 79 L.Ed.2d 482 (1984). In Bildisco, the Court held (1) that a debtor did not violate the National Labor Relations Act ("NLRA") by "unilaterally changing the terms of the [CBA]" after filing for bankruptcy, 465 U.S. at 519, 104 S.Ct. 1188, and (2) that the "Bankruptcy Court should permit rejection of a[CBA] . . . that burdens the estate . . . [if] after careful scrutiny, the equities balance in favor of rejecting the labor contract," id. at 526, 104 S.Ct. 1188. Section 1113, by precluding a debtor from unilaterally changing the terms of its CBA without court approval upon entering bankruptcy, see supra, overturned the Supreme Court's first holding, while leaving the second (more or less) intact. See Daniel Keating, The Continuing Puzzle of Collective Bargaining Agreements in Bankruptcy, 35 Wm. & Mary L.Rev. 503, 505-06 (1994) (noting that commentators have "question[ed] whether the new Code provision was indeed nothing more than a dressed-up version of the most central holdings in the very case that it was thought to overrule").

The NLGA deprives federal courts of jurisdiction to issue "any restraining order or temporary or permanent injunction in a case involving or growing out of a labor dispute, except in a strict conformity with the provisions of this chapter." 29 U.S.C. § 101. While this jurisdiction-stripping provision generally admits of only limited exception, the Supreme Court has held that the NLGA does not preclude courts from enforcing the mandates of the RLA. See Burlington N. R.R. v. Bhd. of Maint. of Way Employees, 481 U.S. 429, 445, 107 S.Ct. 1841, 95 L.Ed.2d 381 (1987). Even so, however, a party seeking an injunction under the NLGA must have clean hands:

No restraining order or injunctive relief shall be granted to any complainant who has failed to comply with any obligation imposed by law which is involved in the labor dispute in question, or who has failed to make every reasonable effort to settle such dispute either by negotiation or with the aid of any available governmental machinery of mediation or voluntary arbitration.

29 U.S.C. § 108.

The RLA "abhors a contractual vacuum." See Air Line Pilots Ass'n, Int'l v. UAL Corp., 897 F.2d 1394, 1398 (7th Cir.1990). Accordingly, a collective-bargaining agreement between a carrier subject to the RLA and its employees or their union (we use the two terms interchangeably) hardly ever expires. See Manning v. Am. Airlines, Inc., 329 F.2d 32, 34 (2d Cir.1964) ("The effect of § 6 [of the RLA] is to prolong agreements subject to its provisions regardless of what they say as to termination."). Rather, once a CBA becomes "amendable," the carrier and the union are bound by statute to embark upon an "almost interminable" re-negotiation process. Detroit & Toledo Shore Line R.R. Co. v. United Transp. Union, 396 U.S. 142, 149, 90 S.Ct. 294, 24 L.Ed.2d 325 (1969). During the pendency of this re-negotiation process, the RLA "obligate[s] [the parties] to maintain the status quo." Consol. Rail Corp. v. Ry. Labor Executives' Ass'n, 491 U.S. 299, 302, 109 S.Ct. 2477, 105 L.Ed.2d 250 (1989).

The term "status quo," found throughout the case law, appears nowhere in the RLA. Several of the RLA's provisions require that parties to a CBA governed by the RLA maintain objective working conditions during the pendency of any dispute arising under (or during the re-negotiation of) their CBA. See 45 U.S.C. §§ 152 (Seventh), 155 (First), 156, 1601; see also Aircraft Mechs. Fraternal Ass'n v. Atl. Coast Airlines ("Atlantic Coast II"), 125 F.3d 41, 43 (2d Cir.1997) (explaining the statutory basis for the requirement that both parties maintain the status quo). The Supreme Court has described the function of these status quo provisions as follows: "The [RLA]'s status quo requirement is central to its design. Its immediate effect is to prevent the union from striking and management from doing anything that would justify a strike. In the long run, delaying the time when the parties can resort to self-help provides time for tempers to cool, helps create an atmosphere in which rational bargaining can occur, and permits the forces of public opinion to be mobilized in favor of a settlement without a strike or a lockout." Shore Line, 396 U.S. at 150, 90 S.Ct. 294. Only after the parties have fully exhausted the dispute resolution and re-negotiation processes does a CBA expire, freeing the parties from their contractual obligations and the RLA's rules governing the preservation of the status quo. Cf. Pan Am. World Airways v. Int'l Bhd. of Teamsters, Chauffeurs & Helpers of America, 894 F.2d 36 (2d Cir.1990).

While the status quo provisions are integral to the RLA, the "heart" of that statute is Section 2 (First), Bhd. of R.R. Trainmen v. Jacksonville Terminal Co., 394 U.S. 369, 377-78, 89 S.Ct. 1109, 22 L.Ed.2d 344 (1969), which requires carriers and employees to "exert every reasonable effort to make [agreements,] . . . [to] maintain agreements . . . and to settle all disputes, whether arising out of the application of such agreements or otherwise, in order to avoid any interruption to commerce," 45 U.S.C. § 152 (First). The broad command of Section 2 (First) fills the interstices of the explicit status quo provisions: A carrier or its employees may invoke it either to ensure effective compliance with the explicit status quo provisions, see Chicago & Nw. Ry. Co. v. United Transp. Union, 402 U.S. 570, 578, 91 S.Ct. 1731, 29 L.Ed.2d 187 (1971) ("The strictest compliance with the formal procedures of the Act [the RLA] is meaningless if one party goes through the motions with `a desire not to reach an agreement.'"), or to further justify an injunction premised primarily on those provisions, see Shore Line, 396 U.S. at 152, 90 S.Ct. 294 (holding that the explicit status quo "provisions, together with [§] 2 First, form an integrated, harmonious scheme for preserving the status quo from the beginning of the major dispute through the final 30-day `cooling-off' period"). We thus conceive of this "implicit status quo requirement" of Section 2 (First), see id. at 151, 90 S.Ct. 294, as supplementary to the RLA's explicit status quo provisions.

Critical to this case, however, Section 2 (First) also imposes a separate duty, which is less closely related to the RLA's status quo provisions: carriers and unions must "exert every reasonable effort to make [agreements] . . . and to settle all disputes," 45 U.S.C. § 152 (First), even when the rules governing the RLA's status quo are not in effect. As the Supreme Court has explained, "[t]he statute does not undertake to compel agreement between the employer and employees, but it does command those preliminary steps without which no agreement can be reached. It at least requires the employer to meet and confer with the authorized representative of its employees, to listen to their complaints, to make reasonable effort [sic] to compose differences—in short, to enter into a negotiation for the settlement of labor disputes . . . ." Virginian Ry. Co. v. Sys. Fed'n No. 40, 300 U.S. 515, 548, 57 S.Ct. 592, 81 L.Ed. 789 (1937); compare Int'l Ass'n of Machinists & Aerospace Workers v. Transportes Aereos Mercantiles Pan Americandos, S.A., 924 F.2d 1005, 1008-1009 (11th Cir.1991), with Regional Airline Pilots Ass'n v. Wings West Airlines, Inc., 915 F.2d 1399, 1403 (9th Cir.1990), and Int'l Ass'n of Machinists & Aerospace Workers v. Trans World Airlines, Inc., 839 F.2d 809, 814 (D.C.Cir. 1988).

We conclude that, in light of Northwest's court-authorized rejection of its CBA under § 1113, the Norris-LaGuardia Act does not bar the district court's preliminary injunction because the union's proposed strike would violate this separate duty under Section 2 (First) to "exert every reasonable effort to make [agreements] . . . and to settle all disputes." 45 U.S.C. § 152 (First). The union concedes that it has an ongoing duty to negotiate under Section 2 (First), but, nevertheless, argues that it is "free to strike" because Northwest "unilaterally alter[ed] the contractual `status quo.'" Appellant's Br. at 15. As we explain below, this argument fails because Section 2 (First) operates independently of the RLA's status quo provisions (and the implicit status quo requirement of Section (2) First). Moreover, the AFA fails to recognize the unique effect on the status quo of a debtor's rejection of a CBA pursuant to § 1113. Because this unique effect informs the bulk of our analysis, it is to this latter issue that we now turn.

II. The Effect of Contract Rejection Under 11 U.S.C. § 1113

To understand the legal consequences of Northwest's rejection, we turn first to the plain text of § 1113, see Leocal v. Ashcroft, 543 U.S. 1, 8, 125 S.Ct. 377, 160 L.Ed.2d 271 (2004); Conn. Nat'l Bank v. Germain, 503 U.S. 249, 252, 112 S.Ct. 1146, 117 L.Ed.2d 391 (1992), and then to that of the RLA, reading these two statutory schemes seriatim, from the most recent to the oldest, see, e.g., Shugrue v. Air Line Pilots Ass'n, Int'l (In re Ionosphere Clubs, Inc.), 922 F.2d 984, 991 (2d Cir. 1990) ("[W]e must give effect to the most recently enacted statute since it is the most recent indication of congressional intent."), and from the more specific to the more general, see, e.g., Morton v. Mancari, 417 U.S. 535, 550-51, 94 S.Ct. 2474, 41 L.Ed.2d 290 (1974). We also assume that Congress passed each subsequent law with full knowledge of the existing legal landscape, Miles v. Apex Marine Corp., 498 U.S. 19, 32, 111 S.Ct. 317, 112 L.Ed.2d 275 (1990) ("We assume that Congress is aware of existing law when it passes legislation."), and without intending the absurd, see Green v. Bock Laundry Mach. Co., 490 U.S. 504, 509-10, 109 S.Ct. 1981, 104 L.Ed.2d 557 (1989).2

With these principles in mind, we reach three conclusions: (1) Northwest's rejection of its CBA after obtaining court authorization to do so under 11 U.S.C. § 1113 abrogated (without breaching) the existing collective-bargaining agreement between the AFA and Northwest, which thereafter ceased to exist; (2) Northwest's abrogation of the CBA necessarily terminated the status quo created by that agreement, after which termination both the RLA's explicit status quo provisions and the implicit status quo requirement of Section 2 (First) ceased to apply; but (3) the AFA's proposed strike would, at present, violate the union's independent duty under the RLA to "exert every reasonable effort to make . . . [an] agreement," 45 U.S.C. § 152 (First), and thus may be enjoined. We proceed to discuss these conclusions in some detail.

A. Rejection of the CBA pursuant to the bankruptcy court's § 1113 order abrogates that agreement.

In theory, Northwest's rejection of its CBA under § 1113 could lead to one of three possible legal consequences: (1) Northwest abrogated the CBA in its entirety and replaced it with the March 1 Agreement; (2) Northwest replaced certain terms of the CBA with the more favorable terms of the March 1 Agreement, but the CBA otherwise continued in force and Northwest did not breach it; or (3) Northwest replaced certain terms of the CBA with the more favorable terms of the March 1 Agreement, but the CBA otherwise continued in force and Northwest did breach it.3 The first interpretation of the effect of Northwest's rejection of the CBA is far and away the most plausible.

The latter two interpretations suffer from one common defect: they ignore the unique purpose of § 1113. Section 365 of Title 11, like § 1113, authorizes contract rejection in bankruptcy.4 And, to be sure, under § 365, if a debtor rejects an executory contract, "it does not completely terminate the contract." Med. Malpractice Ins. Ass'n v. Hirsch (In re Lavigne), 114 F.3d 379, 386-87 (2d Cir.1997). But Northwest did not reject the CBA at issue pursuant to § 365. It acted with the authority of a court order entered pursuant to § 1113. Contract rejection under § 1113, unlike contract rejection under § 365, permits more than non-performance; it allows one party, with the court's approval, to establish new terms that were not mutually agreed upon, the antithesis of a status quo.5 A carrier's obligation to comply with those new terms cannot be reconciled with the continued existence of its prior contract. Compare In re Lavigne, 114 F.3d at 389 (holding under § 365 that "because the rejection does not terminate all contractual and statutory obligations, [the parties are] not absolved from [compliance with the contract]"), with Comair, Inc. v. Air Line Pilots' Ass'n, Int'l (In re Delta Air Lines, Inc.), 359 B.R. 491, 505 (Bankr.S.D.N.Y.2007) ("Section 1113 is forward-looking . . . [and] it necessarily terminates the debtor's obligation to comply with the [prior] agreement"). If a rejected CBA were somehow to remain in force (to whatever extent), a carrier's adherence to a new, bankruptcy-court-approved contract would surely violate Section 2 (Seventh) of the RLA, which prohibits carriers from "chang[ing] the rates of pay, rules, or working conditions of its employees, as a class as embodied in agreements except in the manner prescribed in such agreements or in section 156 of this title." 45 U.S.C. § 152 (Seventh) (emphasis added); see also Shore Line, 396 U.S. at 153, 90 S.Ct. 294 (requiring a carrier to maintain "actual, objective working conditions").

Likewise, these two interpretations (CBA still in force—no breach; CBA still in force—breach) are also difficult to square with the structure of § 1113. See Gade v. Nat'l Solid Wastes Mgmt. Ass'n, 505 U.S. 88, 98, 112 S.Ct. 2374, 120 L.Ed.2d 73 (1992) ("[W]e must not be guided by a single sentence or member of a sentence, but look to the provisions of the whole law.") (alteration in original) (internal quotation marks omitted). Sub-section (f) of § 1113 provides that a carrier may not "unilaterally terminate or alter any provisions of a collective bargaining agreement prior to compliance with the provisions" of § 1113. 11 U.S.C. § 1113(f) (emphasis added). If sub-section (f) forbids unilateral alteration of a CBA unless and until a carrier properly invokes sub-section (a), were we required to definitely interpret sub-section (a), we might well agree with appellants that it permits a carrier "unilaterally" to alter its employees' terms and conditions of employment. But such a "unilateral change" would no doubt breach the RLA's status quo provisions (both explicit and implicit), see Consol. Rail Corp., 491 U.S. at 306, 109 S.Ct. 2477; post at 178-79. And this would lead to an odd result indeed: an airline's exercise of its options under § 1113, a statute that was passed after the RLA and specifically contemplated use by air carriers, see 11 U.S.C. § 1113(a) (extending coverage to air carriers but not railroads), would constitute a violation of the RLA.

The second possible interpretation of the effect of contract rejection under § 1113 (CBA still in force—no breach) is also at odds with bankruptcy precedent (of which Congress was presumably aware when it passed § 1113), holding that under § 365, a party who rejects an executory contract also breaches it. As the Fifth Circuit explained in In re Continental Airlines, "it is difficult to reconcile a holding that damages are due when a[CBA] is rejected [with] an argument that that agreement at the same time does not effectively exist." O'Neill v. Cont'l Airlines, Inc. (In re Cont'l Airlines), 981 F.2d 1450, 1460 (5th Cir.1993). The converse is equally true; it is difficult to understand how a carrier can partially assume a CBA but not have its partial rejection of the CBA effect a simultaneous breach of the agreement.

The third possible interpretation of the effect of contract rejection under § 1113 (CBA still in force—breach) is equally flawed. If a carrier that rejected a CBA simultaneously breached that agreement and violated the RLA, the union would be correspondingly free to seek damages or strike, results inconsistent with Congress's intent in passing § 1113. Cf. In re Delta Air Lines, Inc., 359 B.R. at 509; In re Blue Diamond Coal Co., 147 B.R. 720, 732 (Bankr.E.D.Tenn.1992), aff'd, 160 B.R. 574 (E.D.Tenn.1993). Moreover, even if a carrier breached that agreement but did not violate the RLA, the union would probably still be free to strike. The obligations of carrier and union under the explicit status quo provisions of the RLA are equal and mutual. Shore Line, 396 U.S. at 155, 90 S.Ct. 294. And if a carrier may breach its CBA without violating the RLA, it is plausible that a union might go on strike without violating the RLA. Cf. NLRB v. Ins. Agents' Int'l Union, 361 U.S. 477,