Policy: Law

Sale didn't enable buyer to avoid union contract

Labor unions,Labor,Michigan,Bloomberg News,Law,Federal Courts,Bankruptcy

There is no shortcut for a buyer of a business to ditch a union contract, in the view of U.S. District Judge Lawrence P. Zatkoff from Port Huron, Michigan.

Former company officers bought a business in bankruptcy, through confirmation of a Chapter 11 plan. The bankrupt company assumed the union contract, although it wasn’t assigned to the buyers.

The buyers later didn’t honor the union contract and sued the union in federal district court for a declaration that the bankruptcy sale gave them the business free of the contract. Zatkoff said it didn’t and ruled that the buyers were the alter ego of the bankrupt company.

The chief dispute was whether the sale “free and clear” gave the buyers the company without the union contract. Zatkoff said it didn't.

He pointed to language in the confirmation order where the bankruptcy judge said there was no determination whether the buyers were successors to the bankrupt company.

Zatkoff said the Court of Appeals in Cincinnati and Section 1113 of the Bankruptcy Code together preclude anyone from unilaterally abrogating a union contract.

Once Zatkoff held that bankruptcy didn’t bar the union from contending the contact survived, he had little difficulty in finding that the buyers satisfied the test for being a successor bound by the collective bargaining agreement.

It is unclear from the opinion whether the buyers would have taken the business free of the union contract had the bankruptcy court order said they weren’t successors.

The case is Road Sprinkler Fitters Local Union No. 669 v. Tristar Fire Protection Inc., 12-cv-13983, U.S. District Court, Eastern District Michigan (Port Huron).

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